Refinancing and Your Credit Score
Refinancing is a way to lower your monthly payments and free up some cash. You can refinance your mortgage, your car loan, or a personal loan. By refinancing outstanding loans to a new and lower rate, you pay a lower monthly payment. But, the downside is that refinancing a loan may have an effect on your credit by temporarily lowering your credit score.
When you apply to refinance a loan, lenders check your current credit score and credit history. This action can temporarily cause your credit score to drop a little, but with the money you will save through refinancing, this outweighs the negative impacts of the credit drop. Also, as you pay off your new loan, your credit score will improve with consistent payment history.
Multiple loan applications:
It is likely that you will apply to several lenders to discover which loan is right for you, and who gives you the lowest interest rate. However, it is possible to avoid the multiple loan applications from bringing down your credit score by submitting all your loan applications within a short period of time, as most credit lenders will allow inquires between a two week and month and a half as just one inquiry. However, if you apply for different loans over a period of time, the negative impact could have a lasting effect.
Closing an account:
When you refinance a loan, it will lower your credit score due to the closing of a long-standing credit account. However, lenders may look into your payment history within the account, and have a lesser impact on your credit score. And just like the credit checking, the new loan should pay off in the long run and if you make consistent payments your credit score will improve again.
Refinancing a mortgage, car, personal, or other loan can help lower your interest rates, reduce your monthly payments, and help you increase room within your budget. However, use caution before preceding, as refinancing could hurt your credit score if you aren’t careful. In the long run, with consistent payments, your credit score should be back to where it was.
If you have decided refinancing is the right move for you, apply now and learn about our loan options today. Our experts can find the right numbers for you, and take into account how your new loan will impact your credit score.