3 Ways to Keep a Refi’s Impact to Your Credit to a Minimum

Mortgage RefinanceMortgage refinancing brings many benefits to the table. It lets you snag today’s record-low rates and even turn your property into an ATM by tapping into your home equity. But despite the fresh start it offers, it’s not without downsides, particularly in the credit department.

According to an expert from Altius Mortgage Group, many homeowners are not aware that applying for a mortgage refinance in Utah and other parts of the country may affect their credit rating. The extent of damage varies, but you need to remember these to minimize its impact:

Avoid Being a Serial Refinancer

When you apply for a refi, your lender would pull your credit report to scrutinize your history. One credit inquiry or a series of inquiries for a single refinancing application would normally just count as one and shave about five to 10 points off your score.

The credit pulls would begin to hurt if you refinance on a regular basis, however. For serial refinancers, the credit inquiries would add up and drag your score to a less acceptable level. As your credit score comes into play in loan applications, applying for your second or third refi may sabotage your chances of approval.

Do Not Wait for Your Current Loan to Mature

A refi is a completely new loan. In essence, the refinance would pay off your current mortgage to begin a new line of credit. In doing so, the history in your old credit account would eventually lose its value. Especially if it’s good, it would fall off your credit report in about 10 years.

In addition, replacing an old account with a new one would shorten your credit history’s average length. For this not to be an issue, keep the age gap between your old and new lines of credit to a minimum.

Keep Your Loan Size Small

Especially in a cash-out refinance, a huge loan amount would usually result in a lower credit score. The size of the loan would increase your credit utilization. The more you use your available credit, the deeper you push your credit score down.

A refi has its consequences, but they shouldn’t hurt your credentials that much if you’re careful. Considering its potential impact to your credit, you have another compelling reason to exercise your due diligence before you reset the clock of your mortgage.