One of the most important aspects of personal finance is your credit score. It is crucial that you have a good credit score because it can influence how much you pay in interest on loans. Your credit score can also have an effect on your insurance rates and even your potential employment.
Since your credit is so significant in various aspects of your financial life, it is little surprise that many people are wary of making moves that can compromise their credit. One of the uncertainties that many homeowners have is how mortgage refinancing can affect their credit.
Will Mortgage Refinancing Affect Your Credit Score?
The truth is that mortgage refinancing can affect your credit, but usually not in a way that is overly negative. When you refinance, lenders will run a credit check and that hard inquiry can result in a small ding on your credit report. However, unless you visit more than a handful of lenders, the affect on your credit will be relatively small.
When the mortgage refinancing is complete, though, there are some other effects. Some of the considerations in your credit history are how much debt you have in relation to your income, and how much credit is available to you versus how much you actually use. The more debt you have, the lower your credit score will be.
Replacing your original mortgage loan with a new loan will show up in your credit report. However, a mortgage refinancing effort normally does not create a bad credit situation.
Maintaining Good Credit
After your successful mortgage refinancing efforts, it is important to maintain good credit. In order to keep a clean credit history, you will need to make all payments on time. Your payment history is the most important aspect of your credit score.
When you have refinanced your mortgage, it is important that you pay the minimum amount required, and that you pay it on time each month. Automatic withdrawal can help you this.
In addition to making on-time payments after mortgage refinancing, you should also try to pay down unsecured debt. Your mortgage home loan is secured debt, so it is not viewed as negatively on your credit history as unsecured debt is. You can pay down some of your unsecured debt (such as credit cards) to see an improvement in your credit. Any negative affects to your credit score as a result of the mortgage refinancing may be offset by paying down your unsecured debt.
In the end, mortgage financing can be a good financial move. While it will slightly impact your credit, it should not have an enormous effect on your credit score. If your situation requires it, don’t let a small ding to your credit score stop you from going through with a mortgage refinance.