Getting a mortgage refinance can negatively pull down your FICO score just like whenever you apply for any credit. Its impact, however, varies from borrower to borrower. By and large, it depends on the following:
When You Shop Around
Applying for pre-approval is a vital step to find the most favorable mortgage refinance rate in Salt Lake City, Boise, or Reno. As it involves a credit check, a hard pull would occur. In turn, it would put a ding on your credit report and lower your score by a few points.
Fortunately, getting pre-approved by multiple lenders wouldn’t necessarily impact your credit score a lot. FICO counts identical pulls done within a short window as a single inquiry and disregards mortgage-related ones 30 days prior to scoring. This means shopping around for the best deal available wouldn’t be taken against you.
What the Type of Refi You Get
The number of new accounts you have and the amount of money you owe are two of the biggest factors that affect your FICO score. Between a rate-and-term and cash-out refinance, the latter is more impactful. It could hurt your credit more because you’d be taking on more debt. The more debt you have, the riskier of a borrower you become.
How Old Your Current Loan Is
Replacing a mortgage with another means opening a new account after closing the old one. Active accounts are more beneficial than inactive ones. In 10 years, your old mortgage account would disappear in your credit report. If you’ve always paid your mortgage on time, you would eventually lose the benefit of your excellent payment history attached to it.
The impact to your credit is one of the effects of a mortgage refinance to your life. Make sure its benefits would outweigh its potential downsides to get real, long-term value from it.