Credit Info Does Refinancing Hurt Your Credit? Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Tumblr (Opens in new window)Click to share on Pinterest (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Mint Modified Jun 1, 2022 6 min read Advertising Disclosure The views expressed on this blog are those of the bloggers, and not necessarily those of Intuit. Third-party blogger may have received compensation for their time and services. Click here to read full disclosure on third-party bloggers. This blog does not provide legal, financial, accounting or tax advice. The content on this blog is "as is" and carries no warranties. Intuit does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. After 20 days, comments are closed on posts. Intuit may, but has no obligation to, monitor comments. Comments that include profanity or abusive language will not be posted. Click here to read full Terms of Service. Save more, spend smarter, and make your money go further Sign up for Free Before you make any big financial decision, it’s crucial to learn how it may affect your credit score. If you’re looking to refinance, it’s natural to wonder if it might hurt your credit. Typically, your credit health will not be strongly affected by refinancing, but the answer isn’t always black and white. Whether you’re still considering your options or already made your choice, we’ve outlined what you need to know about refinancing below. What Is Refinancing? Refinancing is defined by taking on a new loan to pay off the balance of your existing loan balance. How you approach a refinancing decision depends on whether it’s for a home, car, student loan, or personal loan. Since refinancing is essentially replacing an existing debt obligation with another debt obligation under different terms, it’s not a decision to take lightly. If you’re worried about how refinancing will affect your credit health, remember that there are multiple factors that play into whether or not it hurts your credit score, but the top three factors are: 1) Having a Solid Credit Score You won’t be in a strong position to negotiate refinancing terms without decent credit. 2) Earning Sufficient Income If you can’t prove that you can keep up with loan payments after refinancing, it won’t be possible. 3) Proving Sufficient Equity You’ll also need to provide assurance that the payments will still be made if your income can’t cover the cost. It’s recommended that you should have at least a 20 percent equity in a property when refinancing a home. How Does Refinancing Hurt Your Credit? Refinancing might seem like a good option, but exactly how does refinancing hurt your credit? In short, refinancing may temporarily lower your credit score. As a reminder, the main loan-related factors that affect credit scores are credit inquiries and changes to loan balances and terms. Credit Inquiries Whenever you refinance, lenders run a hard credit inquiry to verify your credit score. Hard credit inquiries typically lower your credit scores by a few points. Try to avoid incurring several new inquiries by using smart rate shopping tactics. It also helps to get all your applications in during a 14–45 day window. Keep in mind that credit inquiries made during a 14–45 day period could count as one inquiry when your scores are calculated, depending on the type of loan and its scoring model. Regardless, your credit won’t be permanently damaged because the impact of a hard inquiry on your credit decreases over time anyway. Changes to Loan Balances and Terms How much your credit score is impacted by changes to loan balances and terms depends on whether your refinanced loan is reported to the credit bureaus. Lenders may report it as the same loan with changes or as an entirely new loan with a new open date. If your loan from refinancing is reported as a new loan, your credit score could be more prominently affected. This is because a new or recent open date usually means that it is a new credit obligation, therefore influencing the score more than if the terms of the existing loan are simply changed. How Do Common Types of Refinancing Affect Your Credit? Refinancing could help you pay off your loans quicker, which could actually improve your credit. However, there are multiple factors to keep in mind when refinancing different types of loans. Refinancing a Mortgage Refinancing a mortgage has the biggest potential impact on your credit health, and it can definitely affect your FICO score. How can you prevent refinancing from hurting your credit too much? Try concentrating your credit inquiries when you shop mortgage rates to a 14–45 day window — this will help prevent multiple hard inquiries. Also, you can work with your lenders to avoid having them all run your credit, which could risk lowering your credit score. If you’re unsure about when to refinance your mortgage, do your research to capitalize on the best timing. For example, refinancing your mortgage while rates are low could be a viable option for you — but it depends on your situation. Keep in mind that losing your record of paying an old mortgage on time could be harmful to your credit score. A cash-out refinance could be detrimental, too. Refinancing an Auto Loan As you figure out if refinancing your auto loan is worth it, be sure to do your due diligence. When refinancing an auto loan, you’re taking out a second loan to pay off your existing car debt. In some cases, refinancing a car loan could be a wise move that could reduce your interest rate or monthly payments. For example, if you’re dealing with an upside-down auto loan, you might consider refinancing. However, there are many factors to consider before making an auto loan refinancing decision. If the loan with a lower monthly payment has a longer term agreement, will you be comfortable with that? After all, the longer it takes to pay off your car, the more likely it is to depreciate in value. Refinancing Student Loans When it comes to student loan refinancing, a lower interest rate could lead to major savings. Whether you’ve built up your own strong credit history or benefit from a cosigner, refinancing can be rewarding. Usually, you can refinance both your federal and private student loans. Generally speaking, refinancing your student loans shouldn’t be detrimental in the grand scheme of your financial future. However, be aware that refinancing from a federal loan to a private loan will have an impact on the repayment options available to you. Since federal loans can offer significantly better repayment options than private loans, keep that in mind before making your decision. Pros Cons If the cost of borrowing is low, securing a lower interest rate is possible Credit scores can drop due to credit checks from lenders If your credit score greatly improved, you can refinance to get a better rate Credit history can be negatively affected by closing a previous loan to refinance Refinancing a loan can help you lower expenses in both the short term and long term Refinancing can involve fees, so be sure to do a cost-benefit analysis How to Prevent Refinancing from Hurting Your Credit By planning ahead, you can put yourself in a position to not let refinancing negatively affect your credit and overall financial health. Try to prepare by reading your credit reports closely, making sure there are no errors that could keep your credit application from being approved at the best possible rate. Stay one step ahead of any errors so you still have time to dispute them. As long as you take preventative measures in the refinancing process to save yourself time and money, you shouldn’t find yourself struggling with the refinancing. If refinancing makes sense for your situation, you shouldn’t be concerned about it hurting your credit. It might not be the most ideal situation, but it’s extremely common and typically relatively easy for your credit score to bounce back. If you notice that your new loan from refinancing causes alarming changes when you check your credit score, be sure to reach out to your creditor or consider filing a dispute. As long as you’re prioritizing your overall financial health through smart decision making and budgeting, refinancing shouldn’t adversely hurt your credit in the long run. Save more, spend smarter, and make your money go further Sign up for Free Written by Mint Mint is passionate about helping you to achieve financial goals through education and with powerful tools, personalized insights, and much more. More from Mint Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment * Name * Email * Website Notify me of follow-up comments by email. Notify me of new posts by email. Δ Browse Related Articles Housing Finances How Long Does It Take To Refinance a House in 2022? (+ … Home & Refinance Chapter 09: What Is APR & Other Fees? Credit Score Chapter 03 : What Affects Your Credit Score? Credit Score Chapter 08: How to Increase Your Credit Score Credit Info Chapter 04: What Credit Score Is Needed to Buy a House? Housing Finances What Does Refinancing Mean? Refinance Your Mortgage Housing Finances Chapter 06: What Is a Mortgage? Debt Which Debt Repayment Strategy Is Right for You? 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