As home values drop, more home owners are turning to mortgage refinancing to help them get through difficult times. Some homeowners are facing balloon payments, or a reset in interest rates when a fixed rate mortgage becomes an adjustable rate mortgage. Still others hope to refinance a mortgage to pull some cash out of their home equity in order to pay other bills, make investments, pay for education or add to their savings.

Whatever the reason for wanting to refinance a home mortgage, there are some simple facts that hold true — chief among them is that your credit score will have a major impact on the process.

While many lenders were willing to overlook a questionable credit score for home refinancing just a few short months ago, these days they’re taking a much harder look at borrowers’ credit ratings, credit history and credit score. If you’re hoping to refinance your home mortgage, you can expect that your credit score will play a role in whether you can borrow, how much you can borrow and what rating you’ll be offered.

Those with High Credit Scores Are More Likely to Be Approved for Refinancing

Your credit score is determined by several different factors which may include your payment history on bills, your salary, and your debt to credit ratio— even how long you’ve been in your current job. Most lenders view your credit score or credit rating as the best indicator of how likely you are to repay your mortgage. These days, lenders are a lot more careful about the loans that they make, so they’re looking carefully at those credit scores and tightening up their lending guidelines.

Your Credit Score Will Affect Your New Interest Rate

The biggest reason that most people seek to refinance a home mortgage is to get a better deal. Usually, that means a lower interest rate. The better your credit score, the more likely it is that you’ll be offered a refinance at the lowest rates the lender offers. These days, those low interest loans tend to be reserved for borrowers with credit scores that are higher than 780.

If your credit score is lower than that, you may still be approved for a new mortgage, but you can expect to pay interest rates that are considerably higher. Keep in mind that when you’re refinancing a mortgage, even a few tenths of a percentage point in the interest rate can add tens of thousands of dollars to your repayment amount.

How to Get a Lower Interest Rate with a Low Credit Score

Low credit score is a relative term these days. People who would have easily been able to refinance a mortgage a couple of years ago will find it more difficult since the fall in housing values and the lending crisis. If you’re in the market to refinance your existing mortgage, though, there are ways that you can get a lower interest rate if you’re willing to do a little work.

Check Your Credit Score

Start by knowing your credit rating with all three credit rating agencies. That will give you a starting point so that you know whether your credit rating is good, bad or indifferent. It will also give you a figure to plug into the online calculators to get an idea of possible range of quotes you’ll receive.

Improve Your Credit Score

Yes, you can improve your credit score if it’s low, and you should definitely do so if you don’t need to refinance right away. Start by checking your credit reports for any inaccuracies and insisting on corrections by the scoring agency if your find any. Once you’ve corrected any misinformation on your credit report, you can also work to rehabilitate it.

If you’ve missed payments in the past, set a goal to make all payments on all your credit cards and loans on time each month. If necessary, eliminate credit cards that may be "cluttering" your credit report — and costing you monthly fees. Clear up smaller credit cards and bring down the balance on outstanding credit cards. If you do all of those things before you make an application, you’ll be applying for a mortgage refinance with the best possible standing.

Shop Around for the Best Rate

Keep in mind that every lender sets its own policies with regards to lending. The quote you get from one bank or finance company might be higher than one you’d get from a different lender. If you’re applying to refinance your mortgage, don’t settle for the first quote that you’re offered. Instead, check with several different lenders and ask for quotes on a refinance mortgage. That way you’ll get a variety of loans from which to choose and you can decide which will be the best for you.