When I refinanced my first mortgage, I assumed my credit score would stay exactly the same. Instead, it dipped—and that small change opened my eyes to how refinancing really affects your credit profile. In this in-depth guide, I want to unpack every angle, so you’re not caught off guard.
How Refinancing Affects Your Credit Score (and How to Minimize the Impact)
Refinancing means replacing your old mortgage with a new one. Sounds simple, right? But behind the scenes, this involves closing an account, opening a new one, and undergoing a lender’s full check on your creditworthiness. Each step leaves a mark on your credit score.
1. The Hard Credit Inquiry Factor
When you apply for a refinance, your lender pulls your credit report. This “hard inquiry” stays on your credit report for two years and impacts your score for twelve months. The drop is often small—around five points—but if you have multiple inquiries spread out over time, they add up.
2. Your Average Account Age Drops
Your credit score rewards longevity. When you close an older mortgage and start fresh, your average account age shrinks. It’s like cutting down a tree in your credit forest—your history looks younger, which can shave off points.
3. The Hidden Risk: Missed Payments
One of the biggest pitfalls isn’t technical—it’s human error. Many homeowners assume they can skip their last mortgage payment because the new loan will cover it. If the timing’s off, you could accidentally miss a payment, and late payments hurt your credit more than almost anything else.
4. Multiple Inquiries Can Stack Up
Shopping lenders is smart, but dragging it out over months can mean multiple credit pulls. Credit bureaus count multiple mortgage inquiries made within a 45-day window as one. Outside that window? Each counts separately.
How to Minimize Credit Score Damage
I always suggest these best practices to clients:
- Apply to several lenders within a 30- to 45-day window.
- Keep making payments until you have written confirmation that your old mortgage is paid off.
- Don’t open new credit cards or loans while refinancing.
- Check your credit report afterward to confirm no errors or missed payments.
When Does Your Credit Bounce Back?
The good news: credit score dips from a refinance usually fade in a few months—if you manage everything well. Keep making on-time payments and avoid new hard inquiries.
What If You Need to Refinance Again?
Some homeowners refinance multiple times to chase better rates. That’s fine—but factor in the closing costs, fees, and repeat credit checks. Frequent refinancing can leave your credit score stuck in a cycle of small dips.
How Much Will It Cost You Overall?
Refinancing can save you thousands over the life of a loan if done right. But weigh the upfront costs—appraisal fees, origination fees, and any prepayment penalties on your current mortgage.
Does It Hurt More If You Have Bad Credit?
If your credit is already shaky, even a small hit can push you below a threshold. That can mean higher rates or denial of your application. Be honest with yourself: sometimes it’s better to focus on rebuilding your credit before refinancing.
Common Mistakes to Avoid
- Not budgeting for closing costs
- Ignoring payoff timing
- Refinancing into worse terms just to get cash out
- Not comparing enough lenders in a short time frame
Should You Refinance Now?
Look at market rates, your credit profile, and how long you plan to stay in your home. If you’re not staying put for at least a few years, refinancing may not pay off.
Quick Q&A: How Does a Hard Credit Pull Work?
What is a hard inquiry?
It’s when a lender reviews your credit to decide if they’ll approve you. This leaves a record and can drop your score a few points.
Final Thoughts: Credit Dips Aren’t Forever
I’ve seen homeowners panic over a five-point dip. It’s not worth the stress if you’ve run the numbers and refinancing saves you money in the long term. The key is planning ahead and avoiding sloppy mistakes.
Reader Q&A
How long after refinancing can I buy a car or open a new card?
Wait a few months until your score rebounds.
Will my old mortgage stay on my credit report?
Yes, it will show as paid and closed—which is positive for your credit history.
Take your time, know the steps, and protect your score while putting your money to better use. That’s the smart way to refinance.