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LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

What Happens to Your Credit Score When You Refinance a Mortgage?

Updated on:
Content was accurate at the time of publication.

Mortgage refinancing allows you to replace your existing mortgage with a new loan. As a savvy consumer, you might worry about what a mortgage refinance will do to your credit.

Since it’s a new loan, it’s a possible the inquiry itself, balance, loan terms and new open date can affect your credit score.

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What is mortgage refinancing?

If you’re not happy with your current mortgage interest rate or the terms attached to it, you don’t have to stay locked into the loan until you pay off your home. Instead, consider refinancing your mortgage, which allows you to essentially replace your existing loan with a new one. You’ll pay off the balance of the old mortgage with the new loan, then begin making payments exclusively on the new mortgage.

When shopping around for a refinance, you have two options. You can choose a traditional mortgage refinance or a cash-out refinance. The former simply gives you a new mortgage with a new rate and terms, while the latter means borrowing more than you owe to get the difference in cash. Cash-out refinancing provides you with additional funds, but it will likely increase the size of your monthly payment.

Benefits of refinancing a mortgage

There’s more than one reason to refinance. You may decide to refinance your mortgage to:

  • Lower your monthly payment
  • Secure a more competitive interest rate
  • Convert a variable rate to a fixed rate
  • Modify your loan term
  • Take cash out of your home

Taking equity out of your home can have its own benefits. You might choose a cash-out refinance to:

  • Pay off other debts with higher interest rates, such as credit cards
  • Buy a car or other large purchase
  • Make home improvements or repairs
  • Pay for college
  • Start an emergency fund

How to refinance a mortgage

If you’re planning to refinance your mortgage, shopping around to find the best loan for your unique situation is a must. LendingTree lets you compare mortgage refinance rates and multiple customized offers. Comparing lenders allows you to make an informed decision so you can feel confident you’re getting the best possible rate and terms.

Rates aren’t the only factor you need to consider when shopping for a mortgage refinance. Added expenses such as an application fee, loan origination fee, appraisal fee and refinance closing costs can significantly increase the total cost of the loan. Factor all expenses in when calculating the total cost of the loan to help you choose the most competitive offer.

When you’re ready to take the steps to refinance your mortgage, gather the following documents:

  • Social Security card and photo ID
  • Last three pay stubs and W-2s for the past two years
  • Statements from your retirement accounts and investments
  • Bank statements from the past two months, credit card and loan statements, child support and/or alimony payments, homeowners insurance documents and property tax bills

The lender will also check your credit report.

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When is the best time to refinance a mortgage?

The right time to refinance a mortgage is different for everyone. Generally speaking, it’s best to take this step when rates are low, as you want to secure a more competitive rate than the one you already have.

It’s also wise to wait until you have at least 20% equity in your home, as this will likely grant you access to more refinancing options. If your equity stake is less than 20%, refinancing could be more expensive.

Additionally, it’s best to wait until your credit score is in a healthy state, as this plays a huge role in your refinancing eligibility. You’ll likely receive the most competitive offers with a credit score of 760 to 850.

Will shopping around for a refinance hurt my credit score?

Shopping around for a loan to refinance your mortgage could impact your credit score. This is because lenders will need to check your credit before determining if you qualify for a refinance, and certain credit inquiries can cause your score to go down a few points. With that said, multiple inquiries around the same time — signaling that you’re shopping around — are often treated as a single inquiry or ignored altogether, keeping your score safe.

Will refinancing a mortgage hurt the average age of my credit accounts?

The length of your credit history — in other words, how long you’ve had credit and how old your accounts are — counts toward about 15% of your credit score. So opening a new account will lower the average age of your accounts.

However, your payment history counts toward even more of your credit score: about 35%. If you consistently paid your previous mortgage on time, that will positively affect your score.

How to make smart decisions before applying for a refinance

Before applying for a refinance, consider checking your credit report with the major credit bureaus. This way, if you find any mistakes on your credit report, you’ll have time to address them.

Also be careful to not close old accounts or open new ones without consulting your mortgage professional first.

Refinancing your mortgage is a major decision. There are plenty of factors to consider, including the amount your monthly payment will change, fees you’ll incur for the refinance and the impact on your credit score.

Make the best choice for your situation by evaluating the big picture, instead of focusing solely on lowering your current interest rate.

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