While refinancing a mortgage can save money, most people may not have considered how it'll affect their credit and the impact it may have on their lives.
For example, did you know that a lower credit score can cause your credit card rates to increase, impact your eligibility for a line of credit, and increase your insurance premium?
Here's how refinancing can affect your credit and what you can do to minimize its effect:
The Impact on Your Credit Score
Your credit score will likely take a minor hit in the short-term when you refinance your mortgage.
During the loan application process, the lender will check your credit score and credit report. This hard inquiry will cause your credit score to dip temporarily and stay on your credit report for two years. However, it'll only impact your credit during the first year under most credit scoring models.
During the refinancing process, you're essentially replacing an old loan account that has a longer credit history with a brand new account. Since a longer credit history often helps improve the credit score, closing the old account can impact your credit. However, some scoring models consider the payment history of closed accounts, which helps reduce the impact of refinancing on your credit score.
In addition, how a loan is reported can also impact your credit score. For example, if the loan is considered as a modification to an existing loan instead of one with a new open date, it'll have a smaller impact on your credit.
How To Minimize the Impact Of Refinancing On Your Credit Score
In most cases, the money you save through refinancing a mortgage outweighs the temporary hit on your credit score. In addition, by making it easier to pay off the loan, your credit score will improve thanks to a stronger payment history.
By taking a few precautions, you can minimize the impact of refinancing a mortgage on your credit:
To find the best refinancing option for you and to minimize its impact on your credit score, work with a refinancing company that has the right expert knowledge to help you navigate the process.
If you're looking to refinance your mortgage, US Mortgages can provide you with the expert advice and mortgage refinancing services you need to make the process much faster and easier. Contact us today to see how we can help.