Will Refinancing Hurt Your Credit Score?

Here’s a good question that came through last week about whether or not refinancing your mortgage can adversely affect your credit score.

Question: Will refinancing my mortgage wind up hurting my credit score?  I have bad credit – not the worst ever, but still not good.  A friend of mine told me that refinancingwould ding my credit score for about 30 points.  

If that’s the case, would I be better off not refinancing right now?  My wife and I are thinking about selling our house and moving within the next few years and we want our credit to be as good as it can be. Thanks, Rob in Ontario

Answer: Hi Rob, your situation isn’t as unusual as you might think. Lots of Canadians have problem credit from missed and late payments, spotty work histories after layoffs, and other problems that they think might make it hard to refinance their home mortgage loan.

Here’s the lowdown: First, refinancing your mortgage is possible even with a bruised credit score. While applying for a refinance loan will have a small short-term impact on your credit score, don’t despair, because you can minimize the damage by working with a good mortgage broker who can shop around and find you the best overall rate and the best terms for your financial situation.

Plus, if you have some equity in your home and credit card debt or other loans, you can actually tap into your home’s equity and pay off some or all of these other debts, which will have a positive impact on your credit score, because your debt to income ratio situation could be improved.  Making your payments on time every month can help your credit score even more.

If you think you might be interested in selling within the next five years or so, it makes sense that you would want to improve your credit as much as you possibly can.  That will make it easier to qualify for a new mortgage loan when you need it.  For the short term, it might be better for you to look into a fixed rate loan because the Canadian economy is in a rapid state of change.  You never know what the future holds and a fixed rate loan will make it easier for you to plan your expenses.

If you have further questions, Rob, shoot me an email.  I’m always available to help you reach goals even if you have bad credit.  Your past may be blemished, but you shouldn’t have to pay for it forever with radically higher loan rates.

Need to unlock your home's equity - but have a few questions? Why not consider a free private email consultation with me, Darrin Roseborsky? There's no obligation or commitments to worry about. Just helpful answers to your questions. Use the short form in the top-right corner to get started. And in a few minutes, you'll have the answers to all of your questions.