Most of the consumers nowadays are over-concerned about their individual credit scores. They are sometimes paranoid about what actions they can do that can unknowingly impact their respective credit scores. This paranoia is a result of the crude marketing done by the creators of credit scores and their distributors.
Refinancing And Credit Score
In the case of refinancing your mortgage, there is a negligible chance that your credit score may be impacted. However, if you refinance your mortgages serially, then your credit score may take a hit. Like other things in life, you should moderate your mortgage refinancing to avoid impacting your credit score.
Your credit score will take a hit if you’re a serial refinancer because when you refinance, say your home loan, then the lender or the bank will conduct a credit report check and thus you will face a credit inquiry in the process. At the same time some same day loan lenders are known not to conduct credit checks when approving loan applications.
It is not the case that the credit inquiry alone will result in your credit score being reduced. However, in case you are regularly applying for other modes of credit or refinancing your mortgage then the credit inquiries can accumulate to a point where they will be considered negative.
You May See Your Credit Score Get Hurt While Refinancing
Sometimes, while refinancing you may see your credit score become low. You shouldn’t worry a lot about this though. This dip in your credit score may just be a temporary decline in it. It is a result of your application of refinancing. And even if the credit score becomes low, the difference is minimal which is approximately five to ten points. Therefore, you may see a drop in your credit score but you shouldn’t worry as the drop will not be huge unless and until that you are not just applying for credit in every possible way everywhere and are thus classified by the banks as a serial refinancer.
Of course, it is quite impossible to predict how much your credit score is going to decline as there are multiple factors contributing to it and your credit profile is different than others. However, it should be in the range of five to ten points.
At last, it can be concluded that if you have a deep history of credit then you won’t be affected much by a refinancing application. However, people with a limited history of credit may take a substantial hit along with serial refinancers.
There Is A Special Purchasing Period For Mortgages
If you are looking at the FICO (Fair, Isaac, and Company) Score, you should know that in the case of FICO scores, the mortgage inquiries which were made earlier than thirty days ago can’t affect your credit score. And even for mortgage-related queries which are more than thirty days old, all the inquiries may be considered as a single query if the inquiries occur in a small period of time.
If we take an example that you are looking for refinancing and you have approached multiple lenders in a small window of time. In this small window (like a month) the lenders will register multiple credit queries however, all of these credit pulls will be counted as one single credit hit only as the credit score agencies know the patterns that we use while shopping for credit. .They don’t want to discourage people from shopping around. This is why they considered all credit pulls in a small window of time as one single credit hit.
This is a good practice as your credit score shouldn’t be affected just because of you looking at different lenders to apply for a single loan. This process, however, is not the same in case of credit cards as if you shop for more than one credit card in a small window of time then your credit score will take a hit. This is because you are shopping for different products from different lenders instead of the same product from different lenders. In case of refinancing your mortgage, even if you are looking at different lenders, your mortgage is the same which needs to be refinanced.
You should be aware though, that the shopping period for mortgages can be as less as fourteen days in case of older versions of FICO credit score. On the other hand, your shopping window can also be as long as forty-five days in case of newer versions of FICO credit score. Thus, you should not leave a lot of time between your different mortgage refinancing applications or your credit score may get hit more than once.
Your credit score may or may not get hit because of mortgage refinancing depending on your credit profile. However, if you are looking for more than one lender to refinance your existing mortgage, you should apply at all these lenders in a short window of time as they will get counted as one refinancing application.
In any case, if you want to ensure that you won’t get rejected for your mortgage refinancing application, it is safe to have some extra credit score as buffer for example 800 credit score. This way, even if your credit score takes a hit, you won’t be denied if you apply for credit.