You have decided to refinance your loan but are worried if it will hurt your credit. Here’s the answer.
A hard inquiry or the process that takes the lenders through your credit score and the credit history when you apply to refinance a loan can slightly drop your credit score. However, this is just temporary and, usually, this small credit dip can be compensated through the money you save in the long run. When you pay your new loan over time, your credit score will come back to normal due to strong payment history.
Hard Inquiries
As you realize, hard inquiries certainly hurt your credit score. Nevertheless, you can minimize the damage by submitting your loan applications within a short time period. Most credit scoring models consider inquiries between 14-day to 45-day periods as 1 inquiry. This can drastically dwindle the hit that is taken by your credit score.
Therefore, remember not to apply for different loans over a period of several months, as they can last a pessimistic effect on your credit score in the long run.
On the other hand, you are closing the loan that is being refinanced. This can diminish your credit score because you are closing a long-standing credit account. However, unless the account was not closed in good standing, the impact on your credit score will lessen, and you will improve your credit score when you pay your new loan. Some credit scoring models scrutinize your payment history that will also decrease the negative impact on your credit score.
Analyze the Benefits
The pivotal point is that refinancing lets you lower your current interest rates and mortgage payments and show you more feasible options. Therefore, analyze the benefits of refinancing and your financial situation thoroughly over a temporary dip in your credit score before going for a new loan.
Refinancing, in conjunction with credit score and properly allocated regulations, can quickly become a labyrinth. One question quickly turns into three other questions. Uniform Service Veterans Mortgage is here to help guide you through the process and enable you through proper education to give you the tools to make the most informed decision that’s best for you and your family.
Our mission is to help veterans and their families understand and use their VA benefits to achieve the home of their dreams. You will find our staff a friendly and trusted source when it comes to your VA home loan, VA refinancing, and VA cash-out mortgage products.
Contact us today for more information. We look forward to hearing from you.