Could Refinancing Hurt Your Credit?

Can refinancing your mortgage actually hurt your credit? The short answer is yes, but whether or not it will is much more complicated.

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Can refinancing your mortgage actually hurt your credit?

Right now, mortgage rates are at historic lows. For many people, this is a reason for them to refinance their current mortgage, since refinancing allows you to pay off your current mortgage with a new one at a lower rate.

In other words, refinancing means you can lower your monthly payment and put more money in your pocket. But an important factor that many people don’t understand is that refinancing can negatively affect your credit score.

When you refinance your mortgage, the new creditor will do a hard inquiry about your credit history, and this hard inquiry can lower your credit score. This is because looking into new credit lines, like a new mortgage, equates to a greater risk.

How much will this actually lower your credit score? It depends on several factors. In some cases, a hard inquiry may not lower your score at all. In other cases, your score may be lowered by five or more points. It depends on the number of inquiries you’ve had over a certain time frame.

Your score may also be more dramatically impacted if you have a short credit history. If you shop around for the best rate for 45 days or more, you might accrue multiple hard inquiries. This could translate into a negative impact on your credit score.

Refinancing means you can lower your monthly payment and put more money in your pocket.

What does all of this mean for you as a homeowner? Is this a reason for you not to refinance? This isn’t an easy question to answer. It’s best to meet with a mortgage professional who will help you determine what’s best for your specific circumstances.

My team and I would be happy to refer you to one of the many great professionals we’re connected with in this area. If you are thinking of refinancing, the first step is to call us and get a market analysis. The more equity you have in your home, the lower your interest rates could be.

If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.