Refinance Your Mortgage and Build Your Credit Rating

Everywhere you look, lenders are judging you based on the digits in your credit score. In the recent past, your credit rating wasn't all that important. But these days, when lenders are offering more and more options for borrowing money cheaply, they're taking a long, hard look at credit histories. Building your credit rating is perhaps the single most effective strategy to make yourself more credit-worthy. And if you currently have a mortgage, you already have one of the best tools for tuning up your credit rating.

Mortgage refinancing to raise home equity

Lenders look for stable, consistent repayment of obligations over time. The more you can show an ability to pay bills on time, the more points you gain. But if you really want to score high in a lender's eyes, pay down your bills and increase the equity in your home at the same time.

If you're making regular mortgage payments, you may want to look at your options for refinancing to a better rate. If you can lower your interest rate significantly, it will enable you to apply the extra funds toward the principal balance on your mortgage. As the principal drops, your equity rises. Continue to make payments on time, and your credit rating will soon be at the top of its game.

Refinancing for debt consolidation

Another way to build your credit rating is to shop for a lower mortgage rate, refinance, and lower your monthly payments without trying to pay off the principal. Use the extra money to pay off other bills, like credit cards. Or open a money market account and demonstrate that you're disciplined about saving for the future.

No matter how you play your hand, refinancing to a less expensive interest rate can be a trump card when it comes to enhancing your all-important credit rating. Once you show a steadily improving credit score, lenders will court you for your business. In a few years, you can take them up on their offers, and refinance again, to further reduce your debt while increasing your rating even more.