Credit Rehabilitation
What is Credit Rehabilitation?
Credit rehabilitation for mortgages involves rebuilding your credit score to improve your eligibility for better mortgage rates and terms.
If you've experienced financial difficulties that negatively impacted your credit, this process focuses on restoring your creditworthiness through responsible financial management.
Steps include paying down debt, making timely payments, and correcting any errors on your credit report.
Over time, successful credit rehabilitation can lead to qualification for more favorable mortgage options, such as lower interest rates or higher loan amounts, making homeownership or refinancing more accessible and affordable.
How to Improve Your Credit Score?
Common steps in credit rehabilitation include:
Reviewing credit reports: Identifying errors or inaccuracies on credit reports that can be disputed and corrected.
Debt repayment plans: Setting up a structured plan to pay down outstanding debts.
Debt settlements: Negotiating with creditors to reduce the amount of debt owed or to establish a manageable repayment plan.
Budgeting and financial planning: Learning and implementing better money management practices to avoid future credit issues.
Secured credit cards: Using secured or low-limit credit cards to rebuild credit through responsible usage.
Credit counseling: Working with professionals who can provide advice and guidance on managing debt and improving credit.
Credit Rehabilitation Example
Mr. and Mrs. Smith have a mortgage coming up for renewal in three months. The last five years have been a bit more difficult as Mr. Smith lost his job.
In order to survive and cover expenses, the Smiths have used multiple credit cards along with Mrs. Smith’s income, accumulating significant debt.
The balance on those credit cards has been steadily growing and are nearly maxed. The Smiths have also missed several bill and mortgage payments as money has been tight at times. Their credit scores have dropped from 715 to 535.
Their current bank, ABC Bank has decided not to give them the option to renew their mortgage. What is the ideal solution in this situation?
Consolidate their credit card debt and mortgage into a new private lender mortgage for ideally 1 year at most
Mr. Smith will look for a job in order to increase their household income
Acquire low-limit credit cards, paying them off frequently, in order to start building better credit
Pay bills and mortgages on time, further building better credit
With better credit and Mr. Smith’s new job, the Smiths will be looking to renew at the 1 year mark at a lower interest rate than their current private lender mortgage
