Mortgage refinancing can cause a temporary drop in your credit score. The lender generally makes a hard credit inquiry when you apply, and the new mortgage can affect the age and composition of the accounts on your credit report.
The exact effect depends on your credit profile and the scoring model used. The Consumer Financial Protection Bureau describes the effect of a mortgage inquiry as typically small. Your payment history, balances, account age and other recent credit applications can have a larger influence on how your score changes.
Mortgage Refinance Credit Impact Basics
| Credit Event |
Potential Effect |
| Hard credit inquiry |
The lender’s credit check can cause a small, temporary score reduction. |
| Rate shopping |
Multiple mortgage inquiries within the applicable shopping window are generally treated as one inquiry for scoring purposes. |
| New mortgage account |
The refinance adds a new account and can reduce the average age of your open credit accounts. |
| Old mortgage payoff |
The original mortgage is reported as paid or closed after the refinance payoff is processed. |
| New payment history |
On-time payments can build positive history on the new mortgage, while late payments can cause more substantial credit damage. |
Why Can Refinancing Lower Your Credit Score?
A refinance replaces your current home loan with a new mortgage. The lender evaluates your credit during the refinance process, and the replacement loan is eventually added to your credit reports.
Several parts of that process can affect your score.
The Lender Makes a Hard Credit Inquiry
When you apply for a refinance, the lender generally requests your credit reports and scores. This is called a hard inquiry because it results from an application for new credit.
A hard inquiry can lower your score, but the CFPB notes that a mortgage inquiry typically has a small negative effect. The size of the change depends on the rest of your credit history. Someone with a short credit history or several recent applications may experience a different effect than someone with a long, established file.
Checking your own credit is a soft inquiry and does not lower your score. A lender’s prequalification process may also use a soft inquiry, but confirm the type of credit check before providing authorization.
The Refinance Creates a New Account
After closing, the new mortgage appears on your credit reports as a new account. New accounts can lower the average age of your credit history, which is one factor used in many credit-scoring models.
The new mortgage also has little payment history when it first appears. Over time, consistent on-time payments give scoring models more information about how you manage the account.
The Existing Mortgage Is Reported as Paid
The refinance proceeds pay off your old mortgage. The account should then be updated to show that it was paid or closed with no remaining balance.
Paying off the old loan does not erase its history immediately. A mortgage with positive payment history can generally remain on your credit reports after it is closed. The precise effect of closing the account depends on the scoring model and the rest of your credit file.
Your Mortgage Balance May Change
A rate-and-term refinance may replace the existing balance with a similar loan amount, although financed closing costs can increase the new principal balance.
A cash-out refinance creates a larger mortgage because you are borrowing against your equity. Credit scores do not evaluate mortgage balances in the same way they evaluate revolving credit utilization, but the larger debt can still affect your overall credit profile and future borrowing capacity.
Do Multiple Refinance Inquiries Hurt Your Credit?
Multiple mortgage inquiries can appear separately on your credit reports when you compare refinance offers. Credit-scoring models generally recognize that several mortgage applications made within a short period represent rate shopping rather than attempts to open unrelated accounts.
The CFPB explains that mortgage inquiries made within a period of about 14 to 45 days are generally treated as no more than one inquiry for scoring purposes. The exact window depends on the scoring model.
Newer FICO scoring models generally use a 45-day shopping window, while some older versions use a 14-day period. Because you may not know which model a lender will use, completing your refinance applications within 14 days provides the most conservative approach.
The inquiries can still appear individually on your credit reports even when the scoring model groups them together. Grouping affects the score calculation, not whether each lender’s inquiry is listed.
Does the Shopping Window Apply to Other Credit?
The special treatment generally applies to mortgage, auto and student loan inquiries. It does not normally combine unrelated applications for credit cards, personal loans or other revolving accounts.
Applying for a mortgage refinance and several credit cards during the same period can therefore create separate inquiries and raise additional underwriting questions.
How Long Does Refinancing Affect Your Credit?
The credit effect is usually temporary, but there is no universal recovery date. Your score may begin to stabilize within a few months if you make the new mortgage payments on time, keep credit card balances controlled and avoid taking on additional debt.
A hard inquiry can remain on a credit report for up to two years. FICO scoring models generally consider inquiries from the previous 12 months, although their effect typically decreases over time.
The new mortgage remains part of your credit history as long as the account is reported. As the loan ages and develops an on-time payment record, the effect of it being a new account diminishes.
Your score may take longer to recover if you:
- Miss a payment on the old or new mortgage
- Apply for several unrelated credit accounts
- Increase your credit card balances
- Close older revolving accounts
- Add substantial new debt
- Have a short or limited credit history
How to Protect Your Credit While Refinancing
Complete Your Rate Shopping Within a Short Window
Submit your mortgage applications within a focused period. Keeping them within 14 days gives you the strongest chance that the inquiries will be grouped under both older and newer scoring models.
Avoid Applying for Other Credit
Do not open a new credit card, personal loan or auto loan while the refinance is in progress unless necessary. A separate application can create another hard inquiry and change your monthly debt obligations.
This is especially relevant when comparing a refinance with a second mortgage. Applying for both products can result in separate credit reviews and changes to the debts considered during underwriting.
Keep Credit Card Balances Stable
Large credit card purchases can increase your utilization ratio, which compares your revolving balances with your credit limits. Higher utilization can reduce your score and affect the debts or required payments reviewed by the mortgage lender.
Continue Paying the Existing Mortgage
Keep making payments on your current mortgage until the servicer confirms that the refinance payoff has been received and the account is satisfied.
A payment due near the closing date does not automatically disappear. A late mortgage payment can cause more serious credit damage than the refinance inquiry itself.
Review Your Credit Reports Before Applying
Check your reports for incorrect balances, unfamiliar accounts and inaccurate late payments before beginning the refinance. Disputes can take time to resolve, so reviewing your reports early can reduce surprises during underwriting.
Do Not Close Older Credit Cards Solely for the Refinance
Closing a credit card can reduce your available revolving credit and increase your utilization ratio. It can also eventually affect the age of your credit history.
Keep the account open unless there is a separate reason to close it, such as an annual fee or difficulty controlling spending.
Can You Refinance With a Low Credit Score?
The effect of refinancing on an existing credit score is separate from whether your current score qualifies you for a new mortgage.
Your credit score can affect refinance eligibility, interest-rate pricing and available loan programs. There is no single minimum score that applies to every refinance. Requirements vary by loan type, lender and the overall strength of the application.
It may still be possible to refinance with bad credit, but you may have fewer options or receive less favorable pricing. Improving payment history, reducing revolving balances and correcting credit-report errors before applying can strengthen your file.
When Is the Credit Impact Worth It?
A small, temporary score reduction may be reasonable when the new mortgage creates a meaningful financial benefit. The decision should be based on the refinance costs, new payment, loan term and expected time in the home.
Situations where refinancing may make sense include:
- Reducing the interest rate and borrowing costs
- Replacing an adjustable-rate mortgage with a fixed-rate loan
- Shortening the repayment term
- Removing mortgage insurance when eligible
- Changing the borrowers responsible for the loan
- Accessing equity for a planned expense
A lower credit score by itself does not determine whether you should refinance. The broader question is whether the new loan’s financial benefit justifies its closing costs and changes to your mortgage. Your break-even point, remaining loan term and future plans can help determine when refinancing makes sense.
The Bottom Line
Refinancing can temporarily lower your credit score because the lender makes a hard inquiry and the replacement mortgage is reported as a new account. The size and duration of the change depend on your full credit profile rather than the refinance alone.
Complete mortgage rate shopping within a focused 14-day period, avoid unrelated credit applications and continue making every payment on time. As the inquiry ages and the new mortgage develops positive payment history, its initial effect generally becomes less significant.
Frequently Asked Questions
How Many Points Does a Refinance Lower Your Credit Score?
There is no fixed number of points that applies to every borrower. A mortgage inquiry typically has a small effect, but the change depends on your credit history, recent applications, account age, balances and the scoring model used.
Does Checking Refinance Rates Hurt Your Credit?
Checking general advertised rates does not affect your credit. A lender may also offer an initial rate estimate using a soft inquiry. Your score can be affected when you authorize a hard credit check as part of a refinance application.
Do Multiple Mortgage Inquiries Count as One?
Multiple mortgage inquiries made within the applicable rate-shopping window are generally treated as one inquiry for scoring purposes. Depending on the scoring model, the window is typically 14 to 45 days.
Why Did My Credit Score Drop After Refinancing?
Your score may drop because of the hard inquiry, the addition of a new mortgage and changes to the average age of your accounts. Increased credit card balances or other new applications made around the same time can also contribute.
How Quickly Will My Credit Score Recover After Refinancing?
Your score may begin to recover within a few months if you make payments on time and avoid additional credit problems. The timeline varies based on your credit profile, balances and other activity.
Does Paying Off the Old Mortgage Increase Your Credit Score?
Paying off the old mortgage does not guarantee an immediate score increase. The refinance simultaneously closes one loan and creates another, so scoring models evaluate the full change to your credit file.
Does a Cash-Out Refinance Hurt Your Credit More?
Both cash-out and rate-and-term refinances generally involve a hard inquiry and a new mortgage account. A cash-out refinance also increases the loan balance, but the credit effect depends on your overall profile rather than the refinance label alone.
Can a Refinance Improve Your Credit Over Time?
It can contribute to a stronger credit history if you consistently make the new mortgage payments on time. Refinancing does not guarantee a higher score, and late payments or additional debt can offset the benefit of positive payment history.
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