How much your credit score is impacted by changes to loan balances and terms depends on whether your refinanced loan is reported to the credit bureaus. Regardless, your credit won’t be permanently damaged because the impact of a hard inquiry on your credit decreases over time anyway. Keep in mind that credit inquiries made during a 14–45 day period could count as one inquiry when your scores are calculated, depending on the type of loan and its scoring model. It also helps to get all your applications in during a 14–45 day window. Try to avoid incurring several new inquiries by using smart rate shopping tactics. Hard credit inquiries typically lower your credit scores by a few points. Whenever you refinance, lenders run a hard credit inquiry to verify your credit score.
As a reminder, the main loan-related factors that affect credit scores are credit inquiries and changes to loan balances and terms. Refinancing might seem like a good option, but exactly how does refinancing hurt your credit? In short, refinancing may temporarily lower your credit score. It’s recommended that you should have at least a 20 percent equity in a property when refinancing a home. You’ll also need to provide assurance that the payments will still be made if your income can’t cover the cost. If you can’t prove that you can keep up with loan payments after refinancing, it won’t be possible.
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