With fixed rates remaining under 3.875%, many people are considering refinancing their mortgages to lower their monthly payments and overall debt burden.  If you can drop your interest rate by as little as ½ percent, you will be saving thousands of dollars. It just makes good financial sense to do it,  particularly since changes in loan terms, as well as no-point rate options and lower closing costs have made refinancing even more attractive.  However, many people are concerned about the effect this move might have on their credit score, and rightfully so.

Refinancing is likely not going to affect your credit score significantly unless it is “cash out refinancing”, which will increase your debt and reflect negatively on your credit.  Creditors see higher debt as a risk and will be less likely to look favorably on it.

There are other situations connected with your refinance that might have slighter impact on your credit score, although the impact will likely not be very significant (5-10 points, at most). One of these is if your old mortgage account is an account that has been on your credit report for a long time. You will lose the benefit of having an established account history with it.  Established accounts are an asset to your credit score. This means your credit score could be affected slightly. If your prior mortgage has been on your credit report for 10 years or more, that account would become inactive once you refinance. This could shave a few points from your credit score, so it is something to keep in mind.

However, in today’s market, with interest rates being as low as they are, if you can refinance – particularly if you are an FHA homeowner – it’s a good time to do it, even if your credit score takes a slight hit in the process.

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