Mortgage refinancing is when you take out a new home loan with different terms to replace your current mortgage. This has implications on many aspects of your credit score, which could result in your credit taking a hit — at least initially.
How hard of an impact mortgage refinancing has on your credit score depends on the type of refinance you choose, among other factors. Here’s what to know about mortgage refinancing and your credit score, so you can prepare your finances.
[Read: Best Mortgage Refinance Lenders.]
How Mortgage Refinancing Impacts Your Credit Score
Your credit score will likely drop somewhat after you refinance your mortgage, but the negative (and temporary) impact on your credit will almost certainly be outweighed by the benefits of refinancing. After all, if you’re able to refinance to a lower interest rate or pay off your mortgage faster, those are lasting financial benefits.
Here’s why you might see your credit score drop after mortgage refinancing.
Refinancing Triggers a Hard Credit Inquiry (With Exceptions)
Since refinancing involves applying for a new loan, there’s usually a credit check involved — more on that below. However, inquiries should only knock down your score temporarily. The negative impact an inquiry has on your credit score will last no more than 12 months, although inquiries will be visible on your credit report for two years.
A hard inquiry will bring down your score by about five to 10 points, with the size of the drop varying by factors like:
— The credit score you had before the inquiry
— How many lenders you applied with that checked your credit
— If you applied with multiple lenders, how much time passed between inquiries
New credit — which includes hard inquiries — makes up 10% of your FICO score. Under the VantageScore 4.0 model, inquiries fall under the “recent credit” category, comprising 11% of your credit score.
Replacing Your Mortgage Lowers Your Credit Age
Creditors like to see a long history of consistent repayment over many years. Refinancing replaces an older mortgage with a new account, which can lower the average age of your accounts and cause your credit score to dip.
Length of credit history makes up 15% of your FICO score, while depth of credit comprises 20% of your credit score under VantageScore.
Cash-Out Refinancing Increases Your Debt Load
Cash-out mortgage refinancing could have a more noticeable impact on your credit score than a rate-and-term refinance, because you’re adding to your overall debt load by taking out a larger mortgage. For example, let’s say you owe $150,000 on your current mortgage on a home worth $250,000. To cash out $50,000 worth of equity, you could refinance to a new mortgage worth $200,000.
Your credit score takes into account your balances on revolving credit lines to a much greater extent than it does your outstanding debts for installment loans, like mortgages. Still, debt load is a consideration: amounts owed makes up 30% of your FICO credit score, and credit utilization makes up 20% of your VantageScore credit score.
Refinancing Your Mortgage With No Credit Check
For a typical rate-and-term refinance on a conventional loan, the lender will conduct a hard credit check when you apply. But it is possible to refinance your mortgage without submitting to a hard credit inquiry if you have the right type of mortgage.
Government-backed loans from the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture offer a streamline refinance option, which may require a credit check:
— FHA loans offer both credit-qualifying streamline refinance options (which require a hard credit inquiry) and noncredit-qualifying streamline refinance options (which do not). You’ll need to get a credit check in certain cases, like removing a co-borrower.
— USDA loans — which are made to borrowers who are buying a home in designated rural areas — have two streamline refinance options with varying credit requirements. The streamline-assist refinance option does not require a credit check, while the standard streamline refinance does.
— VA loans have a streamline refinance option, also known as an interest rate reduction refinance loan, or IRRRL. Generally, no credit information is needed for a VA IRRRL, except in the case of delinquent VA loans or cash-out VA refinance options.
[SEE: Current Mortgage Refinance Rates]
Minimizing the Negative Credit Impact of Refinancing
Refinancing your mortgage shouldn’t have an outsized impact on your credit score. And unless you plan on opening a credit card or borrowing an auto loan immediately after refinancing your mortgage, you shouldn’t sweat a 10-point or even a 25-point drop in your credit score.
Still, if you’re a credit perfectionist, here are a few ways you can help your credit score recover from a refinance-related hit.
Keep your rate-shopping to a 14-day window. If you’re looking to refinance to a lower mortgage rate, it’s wise to check offers from several different lenders to find the best deal possible. Each lender will want to conduct a credit check, but fortunately, multiple inquiries made within 14 days will count as a single inquiry.
Focus on other debts. Your credit score is much more sensitive to changes in your credit card use than it is to hard credit inquiries. Use some of the money you save on lower monthly payments from refinancing to pay down debt and lower your credit utilization ratio. Or if you use the funds from a cash-out refinance to pay off credit cards, for instance, your credit score should rise significantly.
Be patient. Time heals all wounds, especially wounds that are actually just hard inquiries on your credit report. Inquiries will stop hurting your credit score after one year, and they’ll fall off your credit report completely in two years. Making timely payments on your mortgage and other debts in the meantime will help your credit score recover quickly after refinancing.
More from U.S. News
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What’s the Break-Even Point on a Mortgage Refinance?
Can You Refinance a Mortgage With Bad Credit?
Mortgage Refinancing Can Hurt Your Credit. Here’s Why You Shouldn’t Care. originally appeared on usnews.com
Update 11/21/25: This story was previously published at an earlier date and has been updated with new information.
