Does Refinancing Hurt Your Credit?

In the midst of the global economic crisis, many people have credit problems stemming from late and missed payments, unstable finances, and other related monetary difficulties.

Many are becoming doubtful if they would still be able to refinance their home mortgage loan. In reality refinancing one's mortgage is still possible even with a marred credit score. So does refinancing hurt your credit at all? The answer is simply no, unless you are a serial refinancer.

Many people ask the question does refinancing hurt your credit because they do not have the slightest idea what happens once they apply for a refinance loan. When you start applying for a refinance loan, the mortgage lender will pull your credit; consequently, you will be placed under credit investigation or inquiry. This alone, would not certainly lower your credit score, unless you are always applying for other forms of new credit. Keep in mind that when you are applying for a loan, there are two things that often come in the lender's mind: one, you have run out of money because you are reckless with your finances; and second, you need more credit simply because you have run out of what you have at hand. If you get approved for a loan, then that would be good.

Does refinancing hurt your credit is a valid question because having a new loan has substantial impact on your credit. First, your past credit has already been fully paid, thus, it has been removed from your credit report; in effect, its absence would not help raise your score. It is important to remember that older and fixed trade lines are considered as an asset to one's credit profile; therefore, removing them completely and replacing it with new credit would bring more harm than good. Second, the new loan would only increase your debt-to-income ratio, which can lower your score. Nevertheless, if you were approved for a new loan, your score would not drop significantly, and you will be more likely to stay in the same credit class or category.

Be wary also of continually shopping for refinance, since this might drag your credit down. Although the credit bureau might count the multiple inquiries as one overall inquiry, it is best to be on the safe side to prevent your score from dipping. It is necessary to have an irrefutable reason why one has to apply for a refinance loan. Focus first on why you need to refinance before taking any action. In sum, does refinancing hurt your credit? Not really. In reality, late payments usually cause more damage than refinancing itself.

When times were good, it is quite rare to hear someone asking, "does refinancing hurt your credit?" However the economic turmoil has made this query pretty common nowadays.


Source: Credit Cards For People With Bad Credit Rating

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