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How Refinancing Hurts Your Credit

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Does Refinancing Hurt Your Credit?

That’s a question many consumers ask before applying for this type of mortgage loan, but the answer isn’t as clear-cut as you might think. Let’s look at the facts to see if the refinancing does hurt your credit and whether you can be approved for refinancing with bad credit or no credit at all.

1: Home Refinancing Isn’t Bad for Your Credit

While it’s true that many people will be wary of taking out a loan because they don’t want to jeopardize their credit, refinancing may not hurt it as much as you think. Depending on how many times you’ve taken out loans and what kind of terms and interest rates you have, you might have a good or bad record when it comes to home equity. If you can get a better deal with more favorable terms with your refinance, go for it. Just make sure you understand all of your options before making any decisions. Refinancing isn’t always necessary—and if you don’t need it, then there’s no reason to do it.
Remember: Your credit score is important, but so is paying off your debt in full every month and having a good handle on your finances.

2: Effects of Home Refinancing on Your Credit Score

If you need to refinance your home, will it hurt your credit score? Will it affect whether or not you qualify for loans in the future? Yes, if done improperly. Keep reading to find out how to refinance without hurting your score.

3: Ways to Improve Home Refinancing Impacts on Your Credit

Here’s a question we often hear:

How does home refinancing hurt my credit?

While home refinances loans are considered low-risk debt, there are still instances where you can negatively impact your scores with any type of new loan. Refinancing can hurt your credit if you refinance at an interest rate higher than what you have currently or if you change mortgage products, like changing from an FHA loan to a conventional loan. If you make these changes while having several other recent transactions on your credit report, it could lower your score by as much as 50 points. This is because lenders will see that you have changed not only your payment history but also how much money you owe and how long it will take for you to pay off that debt. For example, let’s say that before refinancing, you had a 30-year fixed mortgage with an interest rate of 5 percent and made monthly payments for five years without missing one payment.

4: A Few Tips to Decrease the Impact

There are steps you can take, however, to minimize any damage that may occur when you refinance. For one thing, when you refinance a loan with a new lender, it’s best to make sure that you’re not extending your payback period by doing so. If you refinance a 30-year mortgage for another 30-year mortgage, for example, that could hurt your credit score more than if you went from a 30-year mortgage to a 15-year mortgage. Also, try to keep all of your loans in good standing and on track—that is, don’t allow balances to fall below what they were at origination or otherwise let them slip into delinquency. Lastly, keep an eye out for predatory lending practices. Refinancing isn’t always bad news; it just depends on how you do it.

5: Conclusion

When you’re looking to refinance your home, you likely want to save money. And it’s natural to think that if you refinance your mortgage, and if you lower your interest rate, it will help save money on interest payments and make a larger dent in what you owe overall. But here’s something to keep in mind: Refinancing is not like getting a second loan; rather, it involves selling an existing mortgage and buying another one with different terms. This can hurt your credit score.


Because every time you take out a new loan or open up a new line of credit, lenders check your payment history, outstanding debt, and other factors before they decide whether to lend to you. So when you go through the process of refinancing—even if it means saving money—your score may suffer as lenders see that you’ve opened up multiple lines of credit within a short time. On top of that, each time you apply for a new loan or credit card, lenders run your name through their system. That counts against you even if you don’t get approved for anything else. It also doesn’t matter how good your track record has been so far; opening several loans at once could mean taking several steps backward on your credit score.

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