Question by lindsaytejeda: How does refinancing your mortgage affect your credit score?
If someone wants to refinance how does it affect their credit? Will it help since it will show one loan as being paid off and another one being opened? Or does that even eachother out?
Answer by AggieChris
It will initially hurt your score as you are making an application for credit after all. However, as you start paying down your loan(s), your score should improve.
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Depending on your original credit score, a refinance will make a very minimal ding, if any. However, when you apply for a loan, your credit will be run, and that inquiry will be a hit (negative) on your score. If possible avoid having your credit run by multiple lenders, even if they tell you that it won’t hurt your score. Give them as much information as possible without giving your social security number. Your SS# will only verify the information you are already giving them (so be honest and straight forward with your answers, so that you can compare apples with apples).
Once the refinance has gone through if your can eliminate some of your other unsecured debt, if you have any, such as credit cards, then do so to decrease your DTI (debt to income) ratio. By decreasing your DTI to below 35% you will then begin strengthen (increase) your credit score.
Lastly, if you are cashing out in your refinance and you have money left over after paying of your credit cards, try to establish a separate banking account with up to 24 months worth of mortgage payments (you can open a WaMu account for free, with no minimum requirement or an ING account that pays 5% interest without a CD). If you are able to do this, it will be such a relief for you to not have to think about where your mortgage payment will come from. You might not agree with this, but, I buy foreclosure properties for a living, and majority of the previous home owners where some that refinanced, pulled money out, bought a boat, and couldn’t make the mortgage payments and ended up loosing the house. It’s that simple and it happens that quickly.
My suggestion…..Refinance for a good purpose, build your finances and your future, not your toys and bad habits.
transfering your mortgage to another lender shoud not effect you credit, unless you shop excessivly for a new mortgage, and you let a lot of people run your credit. Too many inquiries all at once can drop your scores a bit, so don’t give your SS # out to more than two or three lenders while shopping. As long as you are paying your mortgage on time, and do not go more than thirty days late, your scores will be fine. If you need additional financing advice, you can look at me website listed below, and if there is anything I can do to help, you can email me at email@example.com Good Luck!!