Rental Property Investor · Binan, Philippines · Member since 2015 · 5 posts · 0 votes
Hi. I'm from the Philippines and would like to ask how most of you build your credit in bank(s) or other lending institutions. And regarding refinancing, how does it work? Thanks.
Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
9y
You don't build credit with banks specifically.... Your credit profile encompasses all of your debts, and every creditor reports to the credit rating agencies what debts you have and how you are doing with repaying them. One way to start is to get a credit card with a small limit (say $500), use it and pay on time. This will build your credit, and next time you go apply for another line of credit (for example, another credit card or a loan to buy a car), they will have something to off of. Every line of credit you open builds your credit and your score will improve (assuming you pay on time!).
When you apply for a loan at a bank, they will look at your credit report and decide whether you are an acceptable lending risk. Your interest rate will reflect how risky they think you are (more risky = higher interest rate).
As for a refinance, essentially the bank appraises the property and offers you a certain percentage of its value (some banks only do 50%, others will go up to 75 or 80%). You use that money to repay any mortgage you already have on the property and the bank becomes your new creditor. Whether a refinance makes sense depends on whether the new terms are better than the terms of the previous mortgage- for example, a lower interest rate that decreases the monthly payment. Or sometimes people will refinance a property that has a lot of equity built up (by paying down the previous mortgage). Essentially they pull out the money and restart the mortgage clock with a new mortgage. You will need to meet the bank's requirements for them to do a refinance- credit score, stable source of income, acceptable level of debt, etc. Essentially they must think that you are likely to repay the new mortgage.