Can You Refinance With Bad Credit? Options for 2026

Short answer: Yes, but it'll cost you.

Bad credit doesn't disqualify you from refinancing — it just means higher rates and fewer options.

Here's how to refinance when your credit score is under 680.

Credit Score Tiers for Refinancing

Conventional loans:

• 740+: Best rates (6.00-6.25%)
• 720-739: Good rates (6.25-6.50%)
• 700-719: Average rates (6.50-6.875%)
• 680-699: Higher rates (6.875-7.25%)
• 660-679: High rates (7.25-7.75%)
• 640-659: Very high rates (7.75-8.25%)
• 620-639: Maximum rates (8.25-9.00%+)
• Below 620: Denied (most conventional lenders won't approve)

FHA loans:

• 580+: Approved (with 3.5% down on purchase, but refinance LTV limits apply)
• 500-579: Need 10% equity to refinance
• Below 500: Denied

VA loans (veterans only):

• No minimum credit score (lender overlays may require 580-620)
• More forgiving than conventional or FHA

Get bad credit refinance quotes →

Broker's Tip: FHA loans are more forgiving of low credit scores than conventional. If you have a 620 score, FHA might save you 0.5-1% vs conventional.

Loan Options With Bad Credit

Option 1: FHA Refinance

Minimum credit score: 580

Pros:

• Lower credit score requirements
• Rates are less affected by low scores (a 580 and a 720 might only differ by 0.25-0.5%)
• Max LTV: 97.75% (you can have minimal equity)

Cons:

• Upfront mortgage insurance: 1.75% of loan amount (financed)
• Monthly mortgage insurance: 0.55% of balance (never goes away if you put down less than 10%)
• Higher total cost over time

Example:

• Loan: $400,000
• Credit score: 620
• FHA rate: 6.75%
• Monthly MIP: $183
• Total payment: $2,595 + $183 = $2,778

See our FHA refinance guide.

Option 2: FHA Streamline (If You Already Have FHA)

Minimum credit score: No minimum (some lenders require 580)

Pros:

• No appraisal
• Minimal documentation
• No income verification (if lowering payment)
• Fastest approval process

Cons:

• Must already have an FHA loan
• Mortgage insurance continues
• Can't take cash out

If you currently have an FHA loan at 7.5% and your credit is 600, you can streamline to 6.5% with almost no paperwork.

Option 3: VA IRRRL (Veterans Only)

Minimum credit score: No official minimum (lenders typically want 580+)

Pros:

• No appraisal
• No income verification
• No credit check (some lenders)
• Lower rates than FHA

Cons:

• Must be a veteran with existing VA loan
• Can't take cash out

Best option for veterans with bad credit. VA is the most forgiving program.

See our VA IRRRL guide.

Option 4: Subprime / Non-QM Lenders

Credit score: 500-619 (below conventional minimums)

Non-QM (non-qualified mortgage) lenders specialize in borrowers who don't fit traditional guidelines.

Rates: 8.5-12% (significantly higher)

When to consider:

• You're self-employed with complicated income
• Recent bankruptcy or foreclosure
• Credit score under 620

Example:

• Loan: $400,000
• Credit score: 580
• Non-QM rate: 9.5%
• Payment: $3,367/month

This is expensive, but it's an option if you're desperate.

Broker's Tip: Non-QM loans are a last resort. If you can wait 6-12 months to rebuild credit, you'll save thousands by qualifying for FHA or conventional.

How to Improve Your Credit Before Refinancing

If your score is 640-679, you're on the bubble. Boosting it 20-40 points can save you 0.5-1% in rate.

Strategy #1: Pay Down Credit Card Balances (Fast Impact)

Target: Under 30% credit utilization

Example:

• Credit card limit: $10,000
• Current balance: $7,500 (75% utilization)
• Pay down to $2,900 (29% utilization)
• Credit score jumps 20-40 points in 30-60 days

Strategy #2: Dispute Credit Report Errors

Pull your credit report from all 3 bureaus (Experian, Equifax, TransUnion) at AnnualCreditReport.com.

Dispute:

• Late payments that aren't yours
• Accounts that should be closed
• Incorrect balances
• Collections that were paid but still showing

Disputes can take 30-45 days but can boost your score 10-30 points.

Strategy #3: Become an Authorized User

Ask a family member with excellent credit to add you as an authorized user on their credit card.

Their payment history shows up on your report → your score improves.

Caution: If they miss a payment, it hurts YOUR score too. Only do this with someone responsible.

Strategy #4: Pay Off Collections (Carefully)

Don't pay off old collections blindly. Some are past the statute of limitations (can't be sued) and paying them "resets the clock."

Better strategy: Negotiate a "pay-for-delete" — you pay the collection in exchange for them removing it from your credit report.

Get it in writing before you pay.

Strategy #5: Wait for Negative Items to Age

Late payments lose impact over time:

• 0-12 months old: Major impact (-60 to -110 points)
• 12-24 months old: Moderate impact (-40 to -60 points)
• 24+ months old: Minimal impact (-20 to -30 points)

If you had a rough patch 18 months ago, waiting another 6 months might be worth it (your score will naturally recover).

Should You Wait or Refinance Now?

Refinance now if:

1. You're saving $300+/month even with a higher rate due to bad credit
2. You're in an ARM that's about to adjust higher
3. You're facing foreclosure and refinancing buys you time

Wait and rebuild credit if:

1. Your rate savings are minimal (under $100/month)
2. You can boost your score 40+ points in 60-90 days (crossing into a better rate tier)
3. You're not in financial distress (you have time to improve)

Break-even analysis:

Scenario A: Refinance now with 640 credit

• Rate: 7.75%
• Payment: $2,870
• Closing costs: $5,000

Scenario B: Wait 90 days, rebuild to 680 credit

• Rate: 6.875%
• Payment: $2,632
• Closing costs: $5,000
• Savings: $238/month

If you wait 3 months, you'll save $238/month forever. That's $2,856/year and $85,680 over 30 years.

Worth the wait.

What If You've Been Denied?

Common denial reasons:

1. Credit score too low (under 620 for conventional, under 580 for FHA)
2. DTI too high (over 45-50%)
3. Insufficient income (can't document steady income)
4. Recent bankruptcy/foreclosure (waiting period not met)

What to do:

If Denied for Credit Score

• Rebuild for 6-12 months, reapply
• Try FHA or VA (more forgiving)
• Consider a non-QM lender (expensive but available)

If Denied for DTI

• Pay off a car or credit card (lowers monthly debt)
• Increase income (second job, overtime, count alimony)
• Get a co-borrower

If Denied for Income

• Gather better documentation (if self-employed)
• Wait until you have 2 years of steady income
• Consider a DSCR loan (rental property only — qualifies based on property income)

If Denied for Recent Bankruptcy/Foreclosure

Waiting periods:

• Chapter 7 bankruptcy: 4 years (conventional), 2 years (FHA)
• Chapter 13 bankruptcy: 2 years (conventional), 1 year (FHA)
• Foreclosure: 7 years (conventional), 3 years (FHA)
• Short sale: 4 years (conventional), 3 years (FHA)

You can't bypass these. Wait out the period and rebuild credit in the meantime.

Frequently Asked Questions

Q: Can I refinance with a 550 credit score?

Technically yes with FHA (minimum 500), but you'll need 10% equity and rates will be 8-10%+. Most lenders won't approve below 580.

Q: Will refinancing hurt my credit score?

Short-term, yes (5-10 point dip from the inquiry). But if refinancing helps you make on-time payments (lower payment), it helps long-term.

Q: Can I refinance if I have collections?

Yes, but lenders will factor them into your DTI (if you're making payments) or require them to be paid off at closing.

Q: What if I have a bankruptcy on my record?

Wait out the mandatory waiting period (2-4 years), rebuild credit, then apply.

Q: Can I refinance if I've missed mortgage payments recently?

Conventional: No lates in past 12 months FHA: No more than 1 late in past 12 months If you've missed 2+ payments recently, you won't qualify until 12 months pass.

Next Steps

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Compare your options →

I'm a California licensed mortgage broker with 15+ years experience (DRE #01212512). I'll find you the best rate available for your credit situation.

Related guides:

• How to Get the Best Refinance Rate
• FHA Streamline Refinance
• Current Refinance Rates