How does refinancing hurt your credit score?

Refinancing your mortgage can put you in a better financial position. When you replace your current loan with a new one, you can get better terms or lower interest rates. 

While this move can save you thousands over the life of your loan, refinancing does hurt your credit marginally due to credit checks. But any negative impact is usually temporary, and the long-term benefits often outweigh the short-term downsides.

Here’s a guide to refinancing and how to minimize the effects on your credit score.

Why does refinancing hurt your credit?

When you apply to refinance your mortgage, lenders evaluate whether you can pay back your debts and what interest rate to offer you. This process involves pulling your credit report, which creates a "hard inquiry" on your credit file — which is one way refinancing can affect your credit. But a dip in your score usually doesn’t last very long.

When a lender does a hard inquiry (also known as a hard check), credit scoring models view it as an increased financial risk. The credit scoring algorithms assume that someone applying for multiple new credit accounts might be experiencing financial difficulties or taking on too much debt. Even though you're replacing existing debt rather than adding new debt when refinancing, the credit scoring system doesn't distinguish between the two scenarios during the initial inquiry phase. That’s why refinancing a loan hurts your credit in the short term.

How can refinancing lower your credit score

Understanding how credit scores and refinancing interact can help you know what to look for. Here are some of the ways your score could drop:

Hard inquiries

A hard credit check can lower your credit score by a few points each (usually less than 5). While this might seem small, many inquiries from different lenders can add up quickly. But in most cases, hard inquiries only appear on your credit report for two years. 

Late payments

If you're struggling financially and considering refinancing as a solution, you might skip payments on your current mortgage while the application is processing. This is a mistake that can damage your long-term credit score.

Late payments are one of the most negative factors in credit scoring. A single late payment can drop your score by even 100 points, depending on your credit profile. Always make your current mortgage payments on time — even while refinancing.

New debt considerations

While refinancing typically replaces existing debt rather than adding new debt, there are scenarios where your total debt might increase. For example, if you're doing a cash-out refinance to consolidate other debts or fund home improvements, your mortgage balance will be higher than before.

Credit scoring models look at your debt-to-income ratio and credit utilization. If your new mortgage payment is significantly higher than your previous one, it could affect your ability to manage other debts and potentially impact your score.

Credit mix changes

Your credit mix (the variety of credit types you have) makes up about 10% of your credit score. If you're consolidating multiple types of debt into your refinanced mortgage, you might be reducing your credit mix, which could have a minor negative impact on your score. This impact is usually pretty small, but worth noting.

Multiple applications

When you spread applications over several months, each one will be treated as a separate inquiry, creating a larger negative impact on your credit score. Instead, do all your research in one go. Your score will thank you.

...in as little as 3 minutes – no credit impact

Can rate shopping during a refinance lower your credit score?

Credit scoring models actually encourage rate shopping, and it can minimize the impact on your credit score when done correctly. 

When you apply with multiple mortgage lenders within a focused time — usually 14–45 days (depending on the scoring model) — all those inquiries are grouped and counted as a single inquiry for credit scoring purposes. The key is to do all your rate shopping within this compressed timeframe, or “shopping window,” rather than spreading applications out over several months.

Some credit scoring models are more generous with their shopping windows than others. FICO Score 8, for example, uses a 45-day window, while older FICO models use a 14-day window. VantageScore models typically use a 14-day window. To be safe, complete all your applications within two weeks.

How to protect your credit score during a refinance: 5 tips

Taking proactive steps can help minimize how refinancing affects credit scores and protect your financial standing:

1. Check your credit score beforehand: Knowing where you stand before applying can help you understand what rates you qualify for and give you a baseline to measure any changes. You can get free credit reports from all three major credit bureaus once per year.

2. Keep making on-time payments: Continue paying all your bills, including your current mortgage, on time throughout the refinancing process. Payment history is the most important factor in your credit, so make it count.

3. Don't apply for new credit: Avoid opening new credit cards, taking out personal loans, or making other major credit moves while your refinance is in progress. Each new inquiry can further impact your score and complicate your mortgage approval.

4. Maintain your credit utilization: Keep credit card balances low relative to your credit limits. High utilization can negatively impact your score and your debt-to-income ratio calculations for the refinance.

5. Time your applications strategically: Complete all your rate shopping within a two-week window to minimize the impact of multiple inquiries on your credit score.

3 benefits of refinancing

Despite the temporary credit impact, refinancing can offer significant long-term advantages that make the short-term score dip worthwhile.

The key is weighing the short-term credit impact against the potential long-term financial benefits. For most homeowners, a small temporary drop in credit score is a small price to pay for thousands of dollars in interest savings.

It's also worth noting that successfully managing a new mortgage can actually help your credit over time. Making consistent, on-time payments on your refinanced loan demonstrates responsible credit management and can boost your score in the long run.

Here are a few other benefits:

1. Consolidate debt

A cash-out refinance allows you to tap into your home's equity to pay off high-interest debt like credit cards or personal loans. Since mortgage rates are typically lower than credit card rates, this can save you money in interest payments.

Better makes applying for and obtaining a mortgage refinance simple. Our streamlined online process can get you pre-approved in as little as 3 minutes. You can also explore cash-out refinancing options and see how much equity you can access for debt consolidation.

2. Make home improvements

Using your home's equity to fund renovations or improvements can increase your property's value while potentially providing tax benefits. And cash-out refinances typically have lower interest rates than home improvement loans, making refinancing an attractive option for funding major projects.

3. Save money

The most common reason people refinance is to secure a lower interest rate — because even a slight decrease in your rate can translate to significant savings over the life of your loan. For example, reducing your rate by just 1% on a $300,000 mortgage could save you over $60,000 in interest over 30 years.

Lower monthly payments can also improve your cash flow, giving you more money for other financial goals during your loan term, like saving for retirement or building an emergency fund.

Make your refinancing decision with Better

It’s valid to worry about the effects of refinancing on your credit. But the temporary impact on your credit score shouldn't prevent you from pursuing a refinance that could save you money. 

Is refinancing good for your credit in the long run? If it helps you secure better terms, lower payments, or consolidate high-interest debt, it can improve your overall financial picture — even if there's a short-term credit score dip.

When you're ready to explore lender options, Better offers a simple, technology-driven approach. With transparent fees and no hidden costs, you can feel confident about your refinancing decision and its impact on your credit and financial future. Start your pre-approval today.

...in as little as 3 minutes – no credit impact