When refinancing, you may be wondering if this will have an impact on your credit. In many cases, yes, refinancing can initially lower your credit score. Let's explore how these shifts in your credit can happen. We’ll also cover the basics of refinancing and how it can relate to your credit score. This may help you get clarity while considering the pros and cons of refinancing. Not sure where you stand? You can check your credit score for free with Chase Credit Journey®.
What is refinancing?
You see refinancing at work when a loan holder, seeking new terms, takes out a new loan to pay off the original borrowed amount. This usually works well for significant sum loans such as a mortgage or student loans. That’s because refinancing can reduce the interest rate for your loan agreement. Refinancing can have a bigger impact on your finances the larger the amount you refinance.
Some people may consider refinancing a mortgage to save money or to finance renovations that could help them build equity. Refinancing can be easier than taking out your original loan. Some people may also look to improve the loan terms, such as a better interest rate.
Can you refinance with a low credit score?
You may be able to refinance with a low credit score but it may be more difficult. That’s because lenders will see you as more of a risk.
Does refinancing hurt your credit?
Yes, refinancing may hurt your credit score. That’s because the lender may perform a hard inquiry on your credit report during the application process. These types of credit checks can have a negative impact on your credit score.
Though refinancing may initially hurt your credit score, the long-term benefits of refinancing may outweigh this temporary dip. With refinancing, you may be able to secure better loan rates and therefore may be able to make payments that better fit within your budget. And with consistent, timely payments, your score may see improvements over time.
If refinancing has hurt your credit score, or your credit score is just now where you’d like it to be, there are steps you can take to improve it. There are resources and tools to help you work toward building better credit.
What to do if refinancing affects your credit score
If you refinanced and it affected your credit score — or if your credit's not up to your standards — help is available. For instance, Chase Credit Journey® can help raise your credit awareness with a free credit check, insights and alerts, as well as monitoring for your credit and identity. These resources could assist your work toward a better credit score in the following ways:
Free credit checks could help you find out where you stand without harming your score. This information can give you a better idea of your creditworthiness.
Insights and alerts from Chase Credit Journey® can provide useful notifications with details about changes in your credit activity, such as shifts in your available credit amounts and new accounts. Some alerts can also give insights into the causes behind changes in your credit score, which could help guide you toward better credit practices. And in a monthly summary, you can see any rise or fall in your credit score.
Identity and credit monitoring can help you track the use of your personal and identifying information. You could choose to sign up for dark web monitoring, social security number tracking and more to receive alerts when your identity or credit accounts may be vulnerable.
While refinancing may temporarily affect your credit score, it could be financially beneficial as well. After you refinance, Chase Credit Journey® can help you work on building strong credit over time. Tools like a free credit check, insightful alerts and identity monitoring can help you know where you stand now and manage your credit for the future.