Refinancing your mortgage can be a smart financial move—whether you want to lower your interest rate, reduce your monthly payment, or tap into your home’s equity. But what if your credit score isn’t where you’d like it to be? Many homeowners assume that refinancing with bad credit isn’t possible, but the truth is more nuanced. While a low credit score does make refinancing more challenging, it doesn’t automatically take refinancing off the table.
At CapCenter, we’ve helped thousands of homeowners explore their refinancing options, and thanks to our Zero Closing Cost model, many clients save thousands compared to a traditional lender. Let’s walk through how refinancing works if you have bad credit, what lenders look at beyond just your score, and what steps you can take to improve your chances.
What Counts as “Bad Credit”?
Before diving into refinancing options, it helps to define what “bad credit” means in the mortgage world.
Most lenders use FICO scores ranging from 300–850. Here’s a general breakdown:
- Excellent: 740 and above
- Good: 700–739
- Fair: 640–699
- Poor: 580–639
- Very Poor: Below 580
If your score is below 640, lenders often consider that “bad credit.” That doesn’t mean you won’t qualify for a refinance, but it does mean your options will be more limited and your interest rate may be higher. Read more on what credit score you need for a mortgage loan.
What Lenders Look At Beyond Credit
A credit score is only one piece of the puzzle. Lenders also evaluate:
- Equity in your home – The more equity you have, the less risky the refinance looks to a lender.
- Debt-to-income (DTI) ratio – Lenders want to see stable income and manageable debt loads.
- Payment history – Even with a low score, a recent track record of on-time mortgage payments can help.
- Loan type – Government-backed programs like FHA, VA, or USDA may have more flexible credit requirements.
At CapCenter, our in-house underwriting team reviews your full financial picture, not just your credit score. That allows us to present more realistic options for clients who may not qualify elsewhere.
Refinancing Options If You Have Bad Credit
1. FHA Refinance
FHA loans are government-backed and more forgiving of lower credit scores. Some FHA programs allow refinancing with scores as low as 580, and if you’re already in an FHA loan, a Streamline Refinance may waive income verification and appraisal requirements.
2. VA Refinance (IRRRL)
For eligible veterans, service members, or surviving spouses, a VA Interest Rate Reduction Refinance Loan (IRRRL) is one of the most flexible options available. Many VA lenders will work with lower credit scores, and the IRRRL doesn’t always require a full credit review.
3. Cash-Out Refinance with Equity
If you have substantial equity in your home, some lenders may allow a cash-out refinance even with a weaker credit profile. Equity reduces lender risk, though interest rates may be higher than those offered to borrowers with strong credit.
4. Non-Traditional or “Alt-A” Loans
Some lenders offer non-qualified mortgage (non-QM) loans that cater to borrowers with credit challenges. These often come with stricter terms and higher costs, so they should be considered carefully.
Tips to Improve Your Chances of Refinancing
If your credit isn’t where you’d like it, here are steps that can strengthen your application:
- Make on-time payments consistently – Even six months of on-time mortgage and debt payments can improve your profile.
- Pay down revolving debt – Reducing credit card balances can quickly boost your score.
- Check your credit report for errors – Disputing inaccuracies may give your score an immediate lift.
- Consider adding a co-borrower – A spouse or partner with stronger credit may help you qualify.
- Build more equity – Paying down your current mortgage or waiting as property values rise improves your loan-to-value ratio.
CapCenter clients also benefit from our Zero Closing Costs approach, which means if you’re on the fence about whether refinancing makes sense, you don’t have to worry about spending thousands upfront just to test the waters.
When Does Refinancing Make Sense with Bad Credit?
The key question isn’t just “Can I refinance?” but “Should I refinance right now?” Even with a higher rate, refinancing may still be beneficial if:
- You’re moving from an adjustable-rate mortgage (ARM) to a fixed rate for stability.
- You want to consolidate high-interest credit card debt through a cash-out refinance.
- You need to lower your monthly payment for short-term relief, even if it extends your loan term.
That said, if you’re close to improving your credit score, waiting a few months might mean qualifying for a significantly lower rate. At CapCenter, our loan officers help clients run these scenarios side by side so you can make the most informed choice.
Alternatives to Refinancing
If refinancing isn’t feasible right now, you still have options:
- Home Equity Loan – Access equity without touching your primary mortgage.
- Loan modification – Work directly with your lender if you’re struggling to make payments.
- Debt consolidation loans – May free up cash flow while you work on improving your credit.
CapCenter also offers Home Equity Loans that allow clients to keep their existing low-rate mortgage while tapping equity—an option worth considering if you want flexibility without refinancing your whole loan.
How CapCenter Helps Homeowners with Credit Challenges
CapCenter has built its reputation on transparency, savings, and simplifying the mortgage process. Here’s how we stand out if you’re considering refinancing with less-than-perfect credit:
- Zero Closing Costs – Save thousands upfront, whether you’re approved now or choose to wait.
- In-House Team – Mortgage, realty, and insurance under one roof for a faster, smoother process.
- Straightforward Guidance – Our loan officers help you weigh the pros and cons so you can decide with confidence.
- Online Tools – Use our home value estimate tool or mortgage calculator to explore your options before applying.
Final Thoughts
Refinancing with bad credit isn’t impossible—it just requires strategy, patience, and the right partner. From FHA and VA options to improving your financial profile before applying, there are multiple paths forward. The key is understanding your full picture and choosing the timing and product that best fit your goals.
At CapCenter, we’re here to guide you through the process and help you save money with Zero Closing Costs. If you’re wondering whether refinancing makes sense for you, reach out today and let’s explore your options together. Contact Us Today!
