These days it's all too easy to have your credit slip down a few notches. If you are looking to refinance, that's not where you want to be, but it's not the end of the world either. Let your FICO score dip below 680 and you could be a candidate for a bad credit refinance. It depends on the individual lender. Let it get down around 650 or worse and you'll be a bad credit refinance candidate for sure. With the recent shakeup in the sub-prime lending market, many lenders are being more selective about who they'll extend refinance loans to. They'll be looking seriously at your recent credit history. Several sub-prime lenders have ceased operations or declared bankruptcy, so there are fewer options available to borrowers in the sub-prime category.

Even so, you can still refinance, bad credit or not. There are options available to you, so you can take advantage of better interest rates. This can be especially important if you purchased your home using an adjustable rate mortgage, and the 3 or 5 year initial period is about to expire. When it does, your mortgage will adjust upward. This can cost you an extra $200 - $600 per month in higher mortgage payments. Many people don't have the financial wherewithal to absorb such an increase in their mortgage payment. Even if you do, there's little reason to do so when you can refinance and avoid the payment increase.

One of the first things you should do before you attempt to get your refinance underway is to order a copy of your credit report. You can do that for free once per year from any of the three major credit reporting bureaus. It's really important that you do this because it will give you an opportunity to correct any mistakes contained in the report. A 2004 study indicated that about 25% of credit reports contained factual errors that reduced the borrower's credit scores. Don't let that happen to you, it can cost you thousands of dollars. In addition, you may find some accounts that are listed as outstanding but only because you owe a few dollars on them. Those are easily corrected so they'll read "Paid In Full" on the report. That will go a long way towards raising your FICO score, and getting you a better interest rate on your refinance.

After you've done all your homework and corrected any inaccuracies on your credit report, you can begin the process of getting your refinance loan. Contact the different companies so your can do a thorough comparison. There is a large variation among different lenders. Get a written estimate of their rate and fee structure. You'll notice some will quote mortgages with more fees, while others will have lower interest rates. Rarely will you find both. These companies have to pay for the money too, and it's not free. Be
very careful when you scrutinize the different offers.

There are some things you need to look for. One of these is prepayment penalties. This a penalty the lender imposes if you pay the loan off early. They do this because they don't get all the interest if you pay the loan off early. They were counting on a 15 or 30 year income stream from you in the form of interest. Typically it's best not to get a mortgage with a prepayment penalty, even if it includes a lower interest rate, which they typically do. If the penalty is large, you'll be severely hampered if you want to pay off the loan early, such as if you'd like to refinance again, or if you sell your home.

One of the things that is difficult about any refinance, but a bad credit refinance in particular, is comparing the offers. There are many business out there now that allow different lenders to compete for your refinance business. The great thing is, the lenders know their in a competitive bidding situation, so they go out of their way to give you the best refinance deal possible. Remember you do have options, no matter how bad your credit may be. Just do your homework first. The money you save will be your own.