Will Refinancing Hurt My Credit Score? The Mortgage Borrower’s Guide
Refinancing your mortgage can feel like an adult financial rite of passage. Maybe you’re aiming for a lower interest rate, looking to switch from a 30 year to a 15 year term, or hoping to tap into your home's equity with a cash out refinance. Whatever the motivation, the thought of saving hundreds or even thousands of dollars over the life of the loan is exciting.
But before you leap, that nagging question pops up: Will refinancing hurt my credit score?
It's a valid concern. Your credit score is the key to all your borrowing power, and you want to protect it. The simple, honest answer is yes, refinancing will almost certainly cause a temporary dip in your credit score.1 However, that temporary dip is usually minor and short lived. The key is understanding why it drops and how to minimize the impact while maximizing the long term benefits of the refinance.
This guide will break down the refinancing process step by step, showing you exactly how each stage interacts with your credit report and offering strategies to keep your score healthy.
The Initial Impact: Hard Inquiries and the Rate Shopping Period
The very first action you take when considering a refinance is the one that causes the initial dip in your score: the credit inquiry.
The Hard Inquiry vs. The Soft Pull
When you first speak with a lender and they pull your credit history to pre-qualify you for a mortgage rate, they perform a hard inquiry (also known as a hard pull).
What it is: A hard inquiry happens when a financial institution checks your credit history to make a lending decision.2 It is recorded on your credit report and can be seen by other lenders.3
The Impact: Each hard inquiry typically shaves 2 to 5 points off your FICO score. This happens because lenders view multiple inquiries in a short period as a potential sign that you are taking on too much debt or are desperate for credit.
The Mitigating Factor: Rate Shopping: Fortunately, the major credit scoring models (FICO and VantageScore) are smart enough to realize that borrowers shop around for the best mortgage rate. They treat multiple hard inquiries for the same type of loan (like a mortgage) made within a specific time frame as a single inquiry.4
The Time Window: This protected shopping window typically ranges from 14 to 45 days, depending on the scoring model used.5 To minimize the impact, make sure you do all your rate shopping and get quotes from multiple lenders within a tight 14 day window.
The Short Term Impact: Opening a New Credit Account
The second, and usually the most significant, reason your score drops is when you officially close on the new mortgage loan.
Age of Credit History (The Penalty)
When you refinance, you are essentially closing an old loan and opening a brand new one.6
The Drop: The average age of your credit accounts is a scoring factor (it accounts for about 15% of your FICO score).7 By closing a long standing, older mortgage account (which might have been 5 or 10 years old) and replacing it with a brand new loan that is only days old, you immediately drag down your average age of accounts.
Duration: This impact is temporary. As you make on time payments for the new mortgage, the average age of all your other accounts (credit cards, auto loans) will slowly pull the average back up. It usually takes 6 to 12 months for your score to recover completely from this specific factor.
Credit Mix and Credit Utilization (The Neutral Impact)
While these two factors (which account for 10% and 30% of your FICO score, respectively) are relevant to the mortgage, refinancing tends to have a neutral or slightly positive effect.
Credit Mix (Neutral): Refinancing simply swaps one type of installment loan (a mortgage) for another. It doesn't change your mix of credit (installments vs. revolving credit cards).
Credit Utilization (Potentially Positive): If you are performing a cash out refinance and using the funds to pay off high interest, revolving debt like credit card balances, you will see a massive positive boost to your utilization ratio.8 Paying off high balance credit cards is one of the quickest ways to dramatically improve your credit score.9
The Long Term Impact: Why Refinancing is Usually Worth the Risk
While the score dip is real, it’s short lived. For most homeowners, the long term financial benefits of a good refinance far outweigh a temporary 20 or 30 point drop. The score is a tool to secure debt; if the debt you secure is cheaper and better for your finances, the dip is acceptable.
1. Lower Monthly Payments and More Savings
The primary reason people refinance is to secure a better rate. A lower rate frees up cash flow.10 If you use that saved cash to pay down other high interest debts, you improve your overall financial health, which eventually translates to a higher, more stable credit score.
2. Shorter Loan Term (Financial Strength)
Switching from a 30 year mortgage to a 15 year mortgage saves a huge amount of money in interest and speeds up your path to debt freedom.11 Lenders and credit scoring models view this kind of financial discipline favorably over time.
3. Excellent Payment History (The Biggest Factor)
The single most important factor in your credit score is Payment History (it accounts for 35% of your FICO score).12 Refinancing gives you a new loan on which to build a perfect payment track record. Continuing to make on time, full payments on your new mortgage is what will ultimately heal your score and push it to new heights.
Strategies to Protect and Boost Your Score During Refinancing
While you can't stop the hard inquiries or the age of credit impact, you can take deliberate steps to minimize the damage and set yourself up for a quick recovery.
1. The Rate Shopping Blitz
As mentioned, treat rate shopping like a sprint. Decide on the month you want to refinance and get all your quotes within a 14 day window. This ensures all the hard inquiries count as a single event, resulting in a minimal score reduction. Don't start looking six months early; wait until you are serious and ready to move forward.
2. Pay Down Revolving Debt (Maximize Utilization)
Before the lender pulls your credit report for the final underwriting, strategically lower your credit utilization ratio.
The Goal: Aim for a utilization ratio of 30% or lower on all your credit cards. Ideally, get it under 10%.
Why it Matters: If you go into the refinance process with a low utilization score, the temporary dip caused by the new loan opening will be masked by the excellent standing of your credit card accounts, providing a buffer.
3. Do NOT Open Any New Credit Accounts
From the moment you start shopping for rates until the final closing documents are signed, do not apply for any new credit. This includes:
New credit cards (even for store discounts).
Auto loans.
Personal loans.
Any new credit inquiry or newly opened account during this period sends a major red flag to the mortgage underwriter (as it changes your debt to income ratio) and severely amplifies the temporary drop in your score. Lenders often pull your credit again just days before closing, and any change can jeopardize the entire refinance.13
4. Check Your Credit Report First
Before you even talk to a lender, pull your own credit report from all three bureaus (Equifax, Experian, TransUnion). You are entitled to a free report from AnnualCreditReport.com.
Why: You want to find and dispute any errors, outdated information, or fraudulent accounts. Cleaning up your report before the lender sees it will ensure your score is as high as possible going into the process, giving you the best possible rate and a larger buffer against the temporary score dip.
When a Refinance Can Seriously Hurt Your Score
While most refinances lead to a temporary dip, there are two scenarios where refinancing can cause a long lasting, painful drop in your credit score.
Scenario A: Refinancing a Loan You’ve Been Paying Late
If you are refinancing because you are struggling to make payments on your current mortgage, the damage is likely already done.
The Issue: Your score has already been severely harmed by late payments (which are the single worst thing for your credit). While refinancing might give you a lower, more manageable payment, the new mortgage doesn't erase the history of missed payments on the old one. That negative history will stay on your report for seven years.
The Remedy: Focus on making all future payments on the new loan on time. This is the only way to slowly bury the old, negative history under a mountain of new, positive data.
Scenario B: Defaulting on the New Loan
This is the ultimate danger. If you secure a refinance, take the cash out, and then fail to make timely payments on the new loan, your score will plummet.
The Issue: You've incurred two hard inquiries (the refinance and the initial loan), suffered the average age drop, and now have a new, negative payment history. This will take years to recover from, and you risk losing your home.
The Takeaway: Only refinance if you are absolutely certain you can comfortably afford the new monthly payment.
Summary
Will refinancing your mortgage hurt your credit score? Yes, temporarily.
The typical refinance process causes a small, short term drop in your FICO score, primarily due to hard credit inquiries (a loss of about 2 to 5 points) and the sudden decrease in the average age of your credit accounts when the new loan is opened. This dip is usually minor and your score typically recovers within 6 to 12 months of making consistent, on time payments on the new mortgage.
To minimize the impact, borrowers should complete all rate shopping within a 14 day window to group the inquiries as one event, and they should avoid opening any new credit lines until after the new mortgage closes.14 The long term financial benefits of securing a lower interest rate, shortening the loan term, or consolidating high interest debt usually far outweigh the minor, temporary reduction in your credit score.