How Refinancing Hurts Your Credit

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(No Transcript)
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How Refinancing Hurts Your Credit
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Does Refinancing Hurt Your Credit?

• Thats a question many consumers ask before
  applying for this type of mortgage loan, but the
  answer isnt as clear-cut as you might think.
  Lets look at the facts to see if the refinancing
  does hurt your credit and whether you can be
  approved for refinancing with bad credit or no
  credit at all.

1 Home Refinancing Isnt Bad for Your Credit
While its true that many people will be wary of
taking out a loan because they dont want to
jeopardize their credit, refinancing may not hurt
it as much as you think. Depending on how many
times youve taken out loans and what kind of
terms and interest rates you have, you might have
a good or bad record when it comes to home
equity. If you can get a better deal with more
favorable terms with your refinance, go for it.
Just make sure you understand all of your options
before making any decisions. Refinancing isnt
always necessaryand if you dont need it, then
theres no reason to do it.
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2 Effects of Home Refinancing on Your Credit
Score

• If you need to refinance your home, will it hurt
  your credit score? Will it affect whether or not
  you qualify for loans in the future? Yes, if done
  improperly. Keep reading to find out how to
  refinance without hurting your score.

3 Ways to Improve Home Refinancing Impacts on
Your Credit
Heres a question we often hear
How does home refinancing hurt my credit?
While home refinances loans are considered
low-risk debt, there are still instances where
you can negatively impact your scores with any
type of new loan.
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4 A Few Tips to Decrease the Impact

• Refinancing can hurt your credit if you refinance
  at an interest rate higher than what you have
  currently or if you change mortgage products,
  like changing from an FHA loan to a conventional
  loan. If you make these changes while having
  several other recent transactions on your credit
  report, it could lower your score by as much as
  50 points. This is because lenders will see that
  you have changed not only your payment history
  but also how much money you owe and how long it
  will take for you to pay off that debt. For
  example, lets say that before refinancing, you
  had a 30-year fixed mortgage with an interest
  rate of 5 percent and made monthly payments for
  five years without missing one payment.

There are steps you can take, however, to
minimize any damage that may occur when you
refinance. For one thing, when you refinance a
loan with a new lender, its best to make sure
that youre not extending your payback period by
doing so. If you refinance a 30-year mortgage for
another 30-year mortgage, for example, that could
hurt your credit score more than if you went from
a 30-year mortgage to a 15-year mortgage. Also,
try to keep all of your loans in good standing
and on trackthat is, dont allow balances to
fall below what they were at origination or
otherwise let them slip into delinquency. Lastly,
keep an eye out for predatory lending practices.
Refinancing isnt always bad news it just
depends on how you do it.
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5 Conclusion
When youre looking to refinance your home, you
likely want to save money. And its natural to
think that if you refinance your mortgage, and if
you lower your interest rate, it will help save
money on interest payments and make a larger dent
in what you owe overall. But heres something to
keep in mind Refinancing is not like getting a
second loan rather, it involves selling an
existing mortgage and buying another one with
different terms. This can hurt your credit score.
Why?
Because every time you take out a new loan or
open up a new line of credit, lenders check your
payment history, outstanding debt, and other
factors before they decide whether to lend to
you. So when you go through the process of
refinancingeven if it means saving moneyyour
score may suffer as lenders see that youve
opened up multiple lines of credit within a short
time. On top of that, each time you apply for a
new loan or credit card, lenders run your name
through their system. That counts against you
even if you dont get approved for anything else.
It also doesnt matter how good your track record
has been so far opening several loans at once
could mean taking several steps backward on your
credit score.
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  92307
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