Mortgage Q&A: “Does refinancing hurt your credit score?”
Consumers always seem to be overly concerned about their credit scores and what impact certain actions may have on them; perhaps this is a result of all that clever marketing.
When it comes to refinancing, your credit score probably won’t be negatively impacted unless perhaps you’re a serial refinancer.
When you refinance your mortgage, the bank or lender will pull your credit and you’ll be hit with a credit inquiry as a result.
The credit inquiry alone won’t necessarily lower your credit score, but if you’re constantly refinancing and/or applying for other forms of new credit, the inquiries could add up to a point where they’re deemed unhealthy.
As a result, your credit score could see a bit of a ding, though it probably wouldn’t be anything substantial unless you were applying everywhere and anywhere for new credit.
Keep in mind that though shopping for a refinance in a short window of time (say a month) may result in a large number of credit pulls, it will only count as one related inquiry, as the credit bureaus now know the routine.
Another potential negative to refinancing is that you’d lose the credit benefit of the old mortgage account, as it would be paid off via the new refinance.
So if your prior mortgage had been with you for say 10 years, that account would become inactive once you refinanced, which could cost you a few points in the credit department.
Remember, older, more established tradelines are the best asset to your credit profile, so wiping them all out by replacing them with new lines of credit could do you harm in the long run.
Also consider the impact of a refinance that results in a larger loan balance, such as a cash-out refinance.
The larger loan balance will up your credit utilization, meaning you’d be using more of your total available credit, which could push your credit score lower as the more credit outstanding, the more risk.
But all in all, a refinance should have a compelling enough reason behind it to eclipse any credit score concerns, so focus on why you’re refinancing first.
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