There are many common mistakes when it comes to refinancing, some of them so serious they could cause you to lose your home. Identifying pitfalls is the best way to make a refinancing decision you will not later regret.

When refinancing, you do not want to eliminate all the equity you have worked so hard to build. Home ownership is all about building equity – it is the equity in your home that makes it one of, if not the most valuable investment you will ever make.

This does not mean refinancing your home is always a bad financial decision – in fact, often refinancing can be a big step toward reaching your long-term financial goals. And it is the equity in your home that allows you to refinance in the first place.

The most common mistake homeowners make with regards to canceling equity is cash-out refinancing. On the surface, cash-out options can appear extremely attractive, because they allow you to take cash out of your loan amount and put it in your pocket. You can use the cash to pay off debt, but taking cash out reduces the equity in your home, and can even eliminate it altogether.

To avoid this refinancing pitfall, consider a second mortgage as an alternative to refinancing with a cash-out option, especially if the interest rate is higher on the new cash-out loan. Then refinancing with a cash-out loan is very likely to eliminate all your equity. Instead, you can refinance both mortgages into one new mortgage with a cash-out option.

Another form of refinancing homeowners might regret is refinancing from a fixed rate mortgage (FRM) to an adjustable rate mortgage (ARM). Sure, the payments may be lower now, but if interest rates go up, future payments could be higher than the payments you were trying to reduce.

Refinancing options that homeowners are not likely to regret include refinancing from an ARM to an FRM in order to lock in a low interest rate. This is a decision that is usually made with long-term financial goals in mind.

Another refinancing decision that is generally sound is refinancing to the same type of mortgage with a lower interest rate than the current loan. So long as the borrower expects to remain in the home long enough for the interest savings to cover the cost of refinancing, the borrower usually will not regret this decision.

Low interest rates and a lucrative real estate market have prompted many homeowners to consider refinancing. Fortunately, the Federal Truth in Lending Act is a safeguard for those who refinance a loan on their primary residence with a different lender.

If you take action and follow these tips, you will be able to give your credit score and immediate boost and gradually increase it even more as time passes. The major keys are to pay your bills on time and reduce your debt amounts when compared to your credit limit

Here are the 7 tips to improve your credit score!

1. Pay your bills on time. Your payment history is a major factor (35% of your FICO score) in determining your credit score. If you pay your bills late, or had an account referred to collections, your credit score will take a major hit.

2. Check for errors on your credit report. Examine your credit report for errors and contact the credit reporting agencies to fix any errors on your credit report.

3. Don’t apply for many cards at once. This will not improve your credit score because this is a characteristic of high credit risk groups.

43. Increase your credit limit. Another large factor is the amount of your debt in relation to your credit limit. If you have a card with a $10,000 credit limit and your balance is $9,000, this will not help to improve your score. To make the debt/credit limit ratio look better, you can try to call your credit card company and request an increase in your credit limit. Don’t use the extra credit though!

5. Sign up for online banking and make sure your regular recurring bills are paid automatically. This way you will not forget a payment that will wind up reducing your credit score.

6. Apply for loans within a two-week period. Every time you request a loan and the lender pulls your credit report, it can hurt your score. If you keep the loan process within a two-week period, all of the credit report lookups are bundled together as one single request!

7. Don’t ever close an open credit card account. If you pay off a credit card down to a zero balance, leave it open. Remember that a positive factor for your credit score is how much available credit you have at your disposal when compared to your credit balance, in addition to the length of your credit history.