Refinancing

• The key part of any refinancing is to try to obtain better terms under the new loan than you have under your current loan. For example, consumers who refinance a home typically do so when interest rates fall below the rates under which they obtained their original mortgage. Under the new terms, they can typically reduce the interest on their mortgage and reduce their monthly payment.
  
  

Credit Score

• Lenders use your credit score to help determine whether you should receive a refinancing loan. One of the most commonly used credit scores, the FICO score, ranges from 300 to 850. Each lender establishes its own requirements for what they consider a good and bad score, but in general, a FICO score of about 720 is considered good, according to the Federal Citizen Information Center. Borrowers with scores above 780 are generally considered the best borrowers, while those with scores under 600 are considered risky.
  
  

Terms

• Credit score not only affects whether or not you can get a loan, but it also impacts the credit terms the lender is willing to give you. According to Bankrate, the average interest rate for a 30-year fixed-rate mortgage refinancing loan as of early 2010 is 4.79 percent. The best rates are generally only available to borrowers with good or excellent credit scores, while those with a lower score can expect to pay higher interest rates.
  
  

Other Factors

• Your credit score is no the only factor lenders use to evaluate your refinancing application. Creditors also evaluate how much you have to pay each month for your debts in relation to your monthly income, known as a debt-to-income ratio, or DTI. According to LendingTree, many lenders prefer that you do not exceed a 36 percent debt-to-income ratio whenever you get a loan, whether it is a refinancing loan or any other kind.