How Refinancing Affects Your Credit Score: What Every Borrower Should Know?

Let’s be real, when you’re juggling bills, inflation, and rising housing costs, refinancing can sound like a lifesaver. Lower rates? Reduced monthly payments? Count us in. But here’s the thing: the impact of refinancing on your credit score isn’t talked about enough.

If you’ve ever asked yourself, “Will refinancing hurt my credit?”, you’re not alone. It’s a common concern, especially if you’re preparing for a big financial move. In this guide, we’ll break down exactly how refinancing impacts your credit and how to make the process work for you.

• Refinancing can temporarily impact your credit score, but the long-term effects depend on how you manage the loan.
• Multiple credit inquiries within a short window count as one, reducing score impact.
• Paying off existing loans can help lower your credit utilization ratio.
• Closing old loans may shorten your credit history, which can affect your score.
• Planning and timing your refinance strategically can minimize credit disruption.

Refinancing involves replacing your existing mortgage with a new one, often to secure a lower rate, reduce your term, or access home equity. But this financial move also sends signals to credit bureaus. Here's how:

When you apply for a refinance, lenders pull your credit, a “hard inquiry.”

• Impact: Usually a small, temporary dip (5-10 points).
• Pro Tip: If you shop around within a 45-day window, multiple inquiries are counted as one.

Refinancing pays off your old loan and creates a new one.

• This can reduce the average age of your credit accounts, a factor in your score.
• But it also improves your credit mix (different types of loans) and can lower credit utilization if you have revolving debts.

Your old mortgage’s positive payment history stays on your report for up to 10 years. So you don’t lose that record.

Heads up: Refinancing doesn’t have to ding your credit significantly. Here's how to reduce the impact:

Avoid applying for other credit (auto loans, credit cards) right before or after refinancing.

Dispute any errors before lenders pull your report.

Lenders like Be My Neighbor can help compare options efficiently, just ensure all pulls are within the allowed inquiry window.

A refinance doesn’t excuse late payments; those still count heavily against your score.

Lenders don’t just look at your FICO number. They also weigh:

• Debt-to-Income Ratio (DTI): The percentage of your income that goes toward debt payments.
• Loan-to-Value (LTV): How much equity you have in your home.
• Income and Employment Stability

These factors influence loan approval and rates, just as much as your credit score.

Refinancing doesn’t have to be scary or expensive. With platforms like realpha, you can explore commission-free home buying paths that prioritize transparency and savings.

Be My Neighbor is a licensed lender (NMLS #1743790) that can guide you through every step of the refinance journey.

Together, these tools empower you to take control of your finances without unnecessary fees or confusion.

Not always. While there’s typically a small dip due to the credit inquiry and account changes, the long-term effect can be positive if you manage your new loan responsibly.

The hard inquiry may affect your score for up to 12 months, but the impact lessens over time. Your old mortgage history stays on your report for up to 10 years.

Yes, refinance when you’re not planning to apply for other loans or credit, and when your credit is already in good shape.

Not necessarily. While it can help in some cases (e.g., consolidating debt), it should align with broader financial goals.

No, as long as all inquiries are made within 45 days. They're treated as one inquiry for scoring purposes.

Disclosure: This blog is intended for informational purposes only and does not constitute financial advice. All mortgage-related services mentioned should be reviewed for suitability. Realpha is not a mortgage lender but offers commission-free property services. Be My Neighbor is a licensed mortgage lender, NMLS #1743790. Always consult with a licensed mortgage professional for personalized advice. Rates and terms are subject to change based on market conditions and borrower qualifications.