Refinancing will hurt your credit rating a bit at first, but it could actually help in the long run. Usually, your score will drop a few points, but you can recover in a few months. Refinancing and loan modifications may temporarily lower your FICO scores in some areas, but they can save you money with a lower monthly payment. The extent to which a rating is affected depends on how it is reported and on the additional information in your credit report.
Refinancing is a way to get a better deal on a loan or credit account, such as a mortgage, personal loan, or auto loan. While it has personal financial benefits, refinancing affects your credit score and usually causes a small, temporary drop. To help you understand the implications of refinancing a loan, here's a comprehensive guide that answers the question: How does refinancing affect your credit score? In fact, mortgage refinancing can worsen your FICO score, so it's wise to take some precautions. When you refinance a personal loan, it will affect your credit score much like refinancing a mortgage.
Even with the possibility of your credit rating being affected, the advantages of refinancing your mortgage can more than compensate for it. Mortgage refinancing can affect your FICO credit score in different ways, depending on the credit agencies, the financial companies that produce the well-known credit scores. Applying for several types of loans at once can lower your credit score faster than if you focused solely on refinancing a mortgage, says David Battany, executive vice president of Capital Markets at Guild Mortgage. While there are many long-term benefits to refinancing your mortgage, there are some ways refinancing can affect your credit rating in the short term.
Follow these steps to keep your FICO score in good shape, which, of course, is very useful for mortgage refinancing. If your current mortgage was one of the first debts you incurred, refinancing for a new one can have a significantly negative effect on your score.