Home refinancing remains a popular strategy for homeowners. With over 1.5 million refinances projected this year per Freddie Mac estimates, questions abound: Does home refinancing affect your credit? Temporarily and minimally refinancing may cause your credit score to dip in most cases. A mortgage refinance triggers a hard credit inquiry and opens a new account, which can ding your score by 5-15 points initially. However, this impact fades within months, and responsible management often leads to long-term credit improvements through lower payments and consistent history. The RefiGuide published this article to help you find the facts and answers on whether or not refinancing a loan can hurt your credit.
Can Home Refinancing Hurt Your Credit? Unpacking the Mortgage Myths in 2025
If you decide to refinance your mortgage, it can have a small influence on your credit score.
However, if you refinance on a regular basis, it can have a more substantial effect.
When you refinance your house, the mortgage lender will pull your current credit report.
This will put a hard credit inquiry on your report which will lower your score.
This will stay on your credit report for two years, but it only affects your score for a year.
Drawing from expert sources like Equifax and Bankrate, this article demystifies how refinancing affects credit scores, explores factors influencing the dip, and presents four case studies of borrowers who refinanced without lasting harm. In an era where credit scores dictate everything from loan approvals to insurance rates (average FICO 718 nationally), understanding this nuance is crucial. Whether chasing lower rates, cash-out equity, or shorter terms, refinancing can be a net positive—if navigated wisely. The RefiGuide will help you determine what credit score you need for mortgage refinancing.
How Mortgage Refinancing Impacts Your Credit Score
Refinancing replaces your existing mortgage with a new one, often at better terms. But credit bureaus—Equifax, Experian, TransUnion—view it as applying for new credit, triggering scrutiny. The primary hit comes from the hard inquiry: Lenders pull your full report, dropping your score 5-10 points per pull, per FICO models. If shopping multiple lenders, inquiries within 14-45 days count as one, minimizing damage.
Closing the old mortgage shortens your credit history (15% of FICO score), potentially reducing scores if the account was aged 10+ years. The new loan increases your debt-to-income ratio temporarily, affecting utilization (30% of score). Cash-out refinances remain popular in 2025 with home equity at $32 trillion, add debt, further pressuring scores if maxing credit lines.
Yet, these effects are fleeting. Inquiries drop off reports after two years, with most impact gone in 12 months. Lower monthly payments from refi’s ease debt burdens, boosting on-time payment history (35% of score). A 2025 Equifax study shows refi borrowers often see scores rebound 20-50 points within six months through improved utilization. Better Mortgage notes that while scores dip marginally, long-term savings ($200-400 monthly) outweigh it.
Factors amplifying hurt: Multiple inquiries outside windows, high utilization post-cash-out, or missed payments during transition. Borrowers ask us regularly, will home refinancing affect my credit? In 2025, with AI-driven underwriting, lenders soften impacts by pre-approvals without full pulls. Myth-busting: Refinancing doesn’t “reset” scores; they build on existing history.
Weighing the Pros and Cons: When Refinancing Pays Off
Pros dominate for savvy borrowers. Lower rates (e.g., from 7.5% to 6.25%) save $100,000+ over 30 years on a $400,000 loan, per Bankrate calculators. Cash-outs fund renovations, boosting home value and equity. Credit-wise, consistent payments post-refi enhance scores, as seen in CFPB’s 2025 report on cash-out borrowers experiencing initial improvements. Arthur State Bank advises waiting for optimal timing, like post-credit repair, to minimize dips.
Cons? Short-term score drops can hinder other loans (e.g., auto) if below 700. In rising-rate environments, failed refiinaning waste inquiries. Clearview FCU emphasizes long-run gains: “Initial hurt helps via affordability.” Strategies to mitigate: Shop rates in 30 days, maintain low balances, and monitor via free weekly reports from AnnualCreditReport.com.
A 2025 myFICO analysis reveals refis temporarily lower scores but save money, with 70% of borrowers recovering fully in three months. Landmark CU notes hard inquiries as the main culprit, but overall, refis strengthen financial health.
Case Study 1: The Rate-Drop Opportunist (Sarah, 35, Chicago)
Sarah, a marketing manager with a 720 FICO, refinanced her $350,000 mortgage in March 2025 from 7.2% to 6.1% via Better Mortgage, saving $250 monthly. The hard inquiry dropped her score to 710, but no other pulls occurred. She shopped three lenders in two weeks, counting as one inquiry. Post-refi, lower payments freed cash, keeping utilization under 30%. By June, her score rebounded to 728, aided by on-time payments. “The dip was negligible—three months later, I’m approved for a car loan at prime rates,” Sarah shares. This mirrors AMRES’s guide: Good credit buffers minimal impacts. Lesson: Timely shopping prevents compounded hurts.
Case Study 2: The Cash-Out Consolidator (Mike and Lisa, 42/40, Atlanta)
This couple wanted to know if does refinancing a loan hurt credit scores. They had 680 scores and cash-out refi-ed $50,000 from their $280,000 home in July 2025 to pay off 18% credit cards, via LoanDepot. Inquiry hit: 10-point drop to 670. But consolidating debt slashed utilization from 85% to 40%, boosting scores 30 points within a month. By October, scores hit 705, per Equifax monitoring. “Refi hurt initially but healed our credit overall,” Mike says. CFPB’s report aligns: Cash-outs improve scores sharply post-debt payoff. Key: Use proceeds wisely to lower DTI.
Case Study 3: The Term-Shortener (Raj, 50, Miami)
Raj shortened his 30-year mortgage to 15 years in April 2025, dropping from 6.8% to 5.9% on a $450,000 balance via myFICO-recommended lender. His 760 score dipped to 748 from the inquiry and new account. No cash-out kept utilization stable. Payments rose $300 but stayed affordable, maintaining perfect history. Score recovered to 762 by July. “Short-term blip for long-term savings—$80,000 in interest,” Raj notes. Fortune’s rate report echoes: Such refinances preserve credit with minimal disruption. Insight: Stable finances accelerate recovery.
Case Study 4: The First-Time Refi Newbie (Elena, 28, Denver)
Elena, a teacher with a 690 score, refi-ed her FHA loan in September 2025 to conventional at 6.4%, saving $150 monthly via Clearview FCU. Inquiry: 8-point drop to 682. She monitored via Credit Karma, avoiding new credit. On-time payments and lower DTI lifted her to 705 by December. “Feared permanent damage, but it vanished,” Elena says. CompMort’s analysis confirms: Initial dips outweigh benefits for most. Takeaway: Monitoring mitigates perceived harm.
These cases, inspired by CFPB and AMRES insights, show refis’ temporary nature.
Beyond the Dip: Long-Term Credit Strategies Post-Mortgage Refinancing
To maximize benefits, pull reports pre-refi, correct errors, and space inquiries. Post-refi, autopay ensures timeliness. In 2025, apps like Credit Sesame offer real-time alerts. Chicago Fed studies note refinancing enhance transmission via better terms, indirectly aiding scores. FDIC research on supply constraints shows refis don’t crowd out credit access long-term.
Mortgage Refinancing and Credit Scores—Dip, Don’t Ditch
Home refinancing does hurt credit temporarily—via inquiries and new accounts—but the impact is minor (5-15 points) and short-lived, often recovering in 3-6 months. As evidenced by our case studies and sources like Equifax, strategic refinancing can even elevate scores through improved affordability. In 2025’s market, with tools for monitoring and lender innovations, the pros—savings, equity—far outweigh cons for most. Consult advisors, crunch numbers, and refi smartly; your credit will thank you.
The hard credit inquiry does not necessarily lower your score. But if you are regularly refinancing and applying for new credit cards, the inquiries can reach a point where they can lower your score quite a bit. Credit score experts figured out ages ago that people who apply for a lot of new credit are more likely to default. But this does not mean you should not apply for a mortgage or other credit if you think it is necessary.
For homeowners, refinancing offers the opportunity to save money through a reduced interest rate, tap into home equity, or modify loan terms. However, the potential drawback is that the refinancing process may lead to a temporary drop in your credit score. The positive aspect is that your credit has the potential to recover over time.
What You Can See In Your Credit Score When You Apply for a Refinance
- All three credit scores could drop a bit temporarily
- The impact may be only five or 10 points
- Score reversals can happen in a month or so, unless you continue to apply for new credit
Upon applying for home refinancing, lenders will assess both your credit score and credit history. This evaluation, referred to as a hard inquiry, may lead to a temporary, slight decline in your credit score. However, the potential savings achieved through refinancing, particularly in the case of a mortgage, typically outweigh the minor negative impact on your credit score. Over time, as you consistently make payments on your new loan, your credit scores are likely to improve due to the establishment of a positive payment history.
The mortgage being refinanced will undergo closure, a process that may contribute to a reduction in your credit score as it involves closing a longstanding credit account. Nevertheless, certain credit scoring models consider the payment history associated with the closed loan. If the closed account was concluded in good standing, this mitigates the impact on your credit score. Moreover, as you make payments on the refinance mortgages and reduce its balance, your credit score is expected to experience improvement once again.
While it is impossible to say with certainty how much your score will drop with a refinance inquiry, it should not be that bad unless you have a lot of recent inquiries. People with a longer credit history will have less of an effect on their credit score if they have a mortgage refinance inquiry. Those with a limited history could see a bigger effect.
Find out what credit scores you need to refinance a mortgage today.
Special Shopping Period for Mortgages
When you are shopping for a new mortgage, FICO will ignore any mortgage-related inquiries that are less than 30 days old. They will not count against you. For mortgage inquiries that are more than 30 days old, they can be treated like a single inquiry if several take place within a few weeks.
For instance, if you are shopping for a refinance in a 30 day period, you could have several credit pulls from several lenders. But they only count as a single credit hit because the bureaus know that people often need to check with several lenders when refinancing. And, credit bureaus actually want to encourage you to shop for a mortgage, so they treat this situation as just one hard credit inquiry.
This of course differs from shopping for several credit cards in a short time. This can hurt your score because you are applying for different loan products with different credit card issuers.
Even if you are shopping for a refinance with several lenders, if it is for the same reason, you should not have your credit hit more than a single time.
But note this shopping period can be only 14 days for older FICO versions compared to 45 days for newer versions. And keep in mind if you space out refinance apps too much, you may have more than one hard inquiry on your credit report. It should not be too damaging though, and should not keep you from looking at different lenders.
The possible savings you can enjoy from a lower rate should definitely be more important than a small hit to your credit, which is usually short lived anyway. Meanwhile, you can enjoy a lower interest rate on your mortgage for 30 years!
Lose Credit History Once Old Mortgage Is Closed
One possible negative to refinancing is you will lose your old credit history benefit on the old mortgage. It is being paid off by a new account. So, if you had been paying the mortgage for 10 years, that account becomes inactive when you refinance, so this can cost you in your credit score.
Keep in mind that older, more established credit lines are the best asset on your credit score, so replacing them with new lines of credit could harm your score at least in the short term. Also, it can affect the average age of your credit accounts, which is also a negative.
Cash Out Refinances Can Hurt Your Score
Pulling cash out of your home with a refinance results in a larger loan balance, which means you have more debt on your credit report. This will mean a higher level of credit utilization and a higher monthly payment, so your credit score could be pushed lower. Generally, the more credit being used, the higher risk to creditors, even if you never miss a payment. Learn more about cash-out refinance rules. It always makes sense to weigh the benefits and risks with a home equity loan and refinance for cash out.
Overall, a refinance of your mortgage should have a good enough reason behind it to outweigh any negative credit score problems. See also low credit score mortgage options. So think about why you are refinancing your loan first before any worry about your credit score.
References
- Does Refinancing Hurt Your Credit Score? (n.d.). Retrieved from https://www.thetruthaboutmortgage.com/does-refinancing-hurt-your-credit-score/
About Tom
Tom Murphy grew up in La Jolla, California surfing and carving his niche in the local real estate market. Mr. Murphy has a stellar record as a loan officer with over a decade of experience helping people secure the right home loan. He now works at Answer Home Lending in San Diego CA. NMLS # 662141
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