Will refinancing hurt my credit?


Refinancing hurt my credit: When you look at the benefits that refinancing can come with you may think there would have to be some sort of a catch. A valid concern to have is whether refinancing will have a negative effect on your credit score.

In short, refinancing will usually have a minor effect on your credit, but only temporarily.

What’s the point in refinancing if it hurts my credit?

Before we get into how refinancing can impact your credit, let’s first look at why so many Australians refinance their loans despite it affecting their credit score.

Refinancing allows you to secure a better deal and benefits on your loan, like a better interest rate or the ability to consolidate your debts into one payment. Additionally, by refinancing, you gain access to the equity in your home – giving you access to funds to invest in another property or to renovate your home.

As you can see, when done at the right time, the benefits can easily outweigh the temporary effect on your credit.

How does refinancing affect my credit?

By refinancing your home loan, you are essentially taking out another loan to repay your current home loan. As you would know, when getting a loan, there is an extensive check undertaken into your credit by the lender so they can be sure you will be able to pay them back.

In addition to this small bump to your credit, there are a couple other ways your credit can be impacted while refinancing.

Closing your current loan

As mentioned, by refinancing, your current home loan is closed and replaced by a new one. This means you have closed a credit facility, which will also temporarily lower your credit score.

If you’ve had the loan for a while and have had an excellent repayment history, the effect on your credit can take a slightly bigger hit.

Additional enquiries

Many aren’t aware that it only takes a few credit enquiries over a 6-month period to be deemed a ‘bad credit risk’. This means that if you apply to refinance with more than just a couple lenders, you could be hurting your chances of refinancing at all until your credit recovers.

On top of this, a surprising number of other services can make an enquiry, like phone plans and utilities, potentially leaving you with even less room for error when applying to refinance.

This is where our mortgage advisors come in handy. We have a good knowledge of which lenders are likely to approve your unique situation, allowing us to minimise the number of enquiries made into your credit.

When will my credit score recover?

Since there are multiple different parts that can have an effect on your credit score, and everyone’s situation being different, there unfortunately isn’t a standard answer to exactly how much your credit will be impacted, meaning there also isn’t an exact answer on how long it will take to recover.

Some enquiries can stay on your file for up to two years, so, generally speaking, it will usually take between a few months and a couple years for your credit score to fully recover, however, this time can be longer or shorter depending on how much your credit was affected.

When done right, refinancing will only ever temporarily impact your credit, so if you want to refinance, and it will be beneficial – go for it! The benefits that come with refinancing can improve your financial position, which can allow you to easily raise your credit back up, and potentially even improve it.

The best way to ensure that your refinance will be done well, leaving you with a better deal and a financial position is to speak with the team at Glass Financial.

Our team will do everything we can to make sure that you always get the best possible deal and lender for your circumstance.

Give us a call today on 1300 245 277 or send us an email to [email protected]

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