Fair Isaac Corporation, the name behind FICO, is the oldest and most well-known credit reporting…
Refinancing your home not only saves you money, it can also improve your credit score. It saves you money with a better interest rate and better terms.
But what about your credit score? How does refinancing improve your credit score?
Small Ding, Big Return
FICO considers credit checks from mortgage lenders as a hard inquiry, one that takes a few points off your credit score, so multiple inquiries on your credit situation will temporarily affect your score. Rate shopping is not a bad thing but it can result in a slight ding to your credit score.
FICO says that it’s a small ding that will rebound quickly if you try to time credit inquiries to within 40-45 days. FICO treats all credit inquiries within that timeframe as one “credit pull,” and that minimizes the impact on your credit score.
Don’t let that small ding prevent you from looking for a better mortgage. If you want to improve your credit score, you might see a small dip, but the benefits of a better interest rate far outweigh that small initial hit you’ll take.
Don’t Be Afraid To Chance It
With coronavirus still hovering over the country, interest rates are again at historic lows. 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 your credit score, here are a few reasons to consider a refi:
- You want smaller monthly payments. If you’re locked into an adjustable-rate mortgage, (ARM) you might want to refinance before the interest rates increase. Depending on the interest rate and your loan term, an increase in interest can mean more than $100 per month increase. Refinance your mortgage now before that rate changes.
- You have excellent credit but a life change has affected your finances. If you lost your job or have experienced a divorce that’s affected your income, refinance now before your credit suffers.
- You want to change the terms of your loan. Maybe you need a longer loan term so that you’ll have smaller monthly mortgage payments. Improve your credit score by refinancing your loan now.
- You need to tap your home’s equity. If you’ve been in your home for any length of time, you may have built equity. Refinancing can allow you to access that equity and pay off other bills. Staying on top of your finances will help you keep your credit score healthy.
The Bottom Line
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 depend on a good credit score.
If you’re having trouble making your monthly mortgage payment, it’s in your best interest to look into 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.