Have you looked at your credit report lately? You should pull it every year to…
Refinancing your home can save you a lot of money, but believe it or not, it can really improve your credit score. You already know that refinancing can put money in your pocket with a better interest rate and better terms, but what happens to your credit score when you refinance? How does refinancing affect your credit score?
Big Return For Little Effort
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 dip to your credit score.
FICO says that small nick 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, the benefits of a better interest rate far outweigh the small hit to your credit score.
Don’t Be Afraid To Chance It
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 in today’s world, changing jobs may depend on a good credit score.
Mortgage rates are dipping, going down from 7.79% in late October to around 6.7% in mid-December. Although still higher than at the beginning of 2023, rates are expected to level out around 6.5% in the coming months, so 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.