Refinancing your home mortgage can certainly help your credit score. But there are important facts you should know before you start your hunt for a new mortgage.
Refinancing can save you money. Once you find a better interest rate and better terms, you will definitely improve your monthly budget. But what about your credit score? Will refinancing improve your credit score?
Rate shopping is not a bad thing but it can result in a slight ding to your credit score. FICO considers credit checks from mortgage lenders as a hard inquiry, one that takes a few points off your score. So multiple inquiries on your credit situation will temporarily affect your score.
But don’t worry; FICO says that it’s a small ding that will rebound quickly if you try to time credit inquiries to within 30-45 days. FICO treats all credit inquiries within that timeframe as one “credit pull,” and that minimizes the impact on your score.
You will also lose the loan payment history associated with your current loan. Payment history is a major factor in computing your credit score. When you refinance, you start a brand new payment history with your new lender. Some scoring models continue to factor in your payment history on closed loans, but it’s an important fact to consider when refinancing.
But don’t let these small dings prevent you from looking for a better mortgage. If you want to improve your credit score, the benefits of a better interest rate and loan term far outweigh those initial hits to your credit score.
The whole point of having good credit is to take advantage of its perks. The ability to get better loans, better insurance rates, and even a better job depends on a good credit score.
If you’re locked into a mortgage that you can no longer afford, the chances are good that your credit is going to suffer. If you want to improve or preserve your credit score, here are a few reasons to consider a refi:
If you’re having trouble making your monthly mortgage payment, it’s in your best interest to investigate a new loan. It’s worth the ding to your credit score to find a better loan that fits your monthly budget. Refinancing your mortgage could substantially improve your credit score, as well as relieving much stress in your life.