How Refinancing Changes Your Credit Score

Refinancing will lower your credit score in the short term, then raise it back over time

When you refinance a loan, your credit score typically drops by 5 to 10 points within days of the lender running a hard inquiry and opening the new account. This is temporary. Within a few months, your score usually recovers and often climbs higher than before, because refinancing reduces the amount of interest you pay and can lower your monthly payment, making debt easier to manage.

The dip happens because refinancing involves two things that credit bureaus track closely: a hard inquiry (when a lender checks your credit to decide whether to lend to you) and a new account opening (which lowers the average age of your accounts). Both of these are normal parts of the process and both are temporary.

Key Takeaways

• A hard inquiry and new account opening will lower your score by 5 to 10 points immediately after you refinance.
• Your score typically recovers within three to six months as you make on-time payments on the new loan.
• Refinancing can raise your score higher than it was before if it lowers your credit utilization ratio or improves your payment history.
• The long-term benefit of refinancing usually outweighs the short-term credit score dip, especially if you save money on interest.
• Closing your old account after refinancing can hurt your score more than keeping it open, even if you are not using it.

Why a hard inquiry lowers your score immediately

A hard inquiry is a record that a lender checked your credit because you asked them to. Credit bureaus treat hard inquiries as a signal that you are seeking new debt, which is a small risk factor. Each hard inquiry typically reduces your score by a few points.

Hard inquiries stay on your credit report for two years, but they stop affecting your score after about three to six months. Multiple hard inquiries within a short window (usually 14 to 45 days, depending on the scoring model) often count as a single inquiry, so shopping around for the best refinance rate does not multiply the damage.

Soft inquiries — when you check your own credit or a company checks it for a pre-qualification offer — do not affect your score at all.

How opening a new account affects your credit age

When you refinance, the lender opens a new account in your name. Credit bureaus factor in the average age of all your accounts, and a brand-new account lowers that average. A lower average age signals slightly higher risk, so your score drops a few more points.

This effect is temporary. As the new account ages, it becomes part of your credit history. After a year or two, the new account stops dragging down your average age, and the impact fades.

The age of your oldest account does not change when you refinance, so your credit profile still includes your longest history. This is why keeping old accounts open — even after you pay them off — helps your credit score over time.

When refinancing actually raises your score after the initial dip

Refinancing often raises your score higher than it was before, even after accounting for the initial dip. This happens when refinancing improves one of the factors that matter most to credit bureaus: your payment history and your credit utilization ratio.

If refinancing lowers your monthly payment and makes it easier to pay on time, your payment history improves. Payment history is the single largest factor in your credit score, so consistent on-time payments add up quickly. Within three to six months of making on-time payments on the new loan, most people see their score recover and climb higher than before.

If you refinanced a credit card balance into a personal loan or mortgage, you also lowered your credit utilization ratio — the percentage of available credit you are using. Credit bureaus see lower utilization as lower risk. If you went from using 80% of your credit card limit to using 20%, your score can jump 10 to 40 points once that change reports to the bureaus.

The difference between refinancing a mortgage and refinancing other loans

Mortgage refinancing follows the same credit score pattern as other refinancing, but the numbers are usually larger. A mortgage refinance involves a bigger hard inquiry and a larger new account, so the initial dip may be slightly steeper — sometimes 10 to 15 points instead of 5 to 10.

However, mortgage refinancing also tends to have a bigger payoff. If you refinance to a lower interest rate, you save tens of thousands of dollars over the life of the loan. The lower monthly payment makes it easier to pay on time, and your payment history — the biggest factor in your score — improves steadily. Most people see their score recover within six months and climb higher within a year.

Auto loan refinancing works the same way, though the dollar amounts are smaller. Credit card balance transfers (moving a balance from one card to another) can actually hurt your score more than a traditional refinance, because opening a new credit card account lowers your average age more than opening a loan account does.

What happens to your score if you close the old account

After you refinance, you may be tempted to close the old account to avoid temptation or to simplify your finances. Closing the account will hurt your credit score more than leaving it open.

When you close an account, you lose the credit history associated with it, which lowers your average account age. You also reduce your total available credit, which raises your credit utilization ratio on any remaining accounts. Both of these changes lower your score.

If the old account is a credit card, closing it is especially costly to your score. Keep the card open, pay off the balance, and use it occasionally (a small purchase every few months, paid in full) to keep the account active. The account will continue to help your score as it ages.

How long it takes your score to recover and improve

Most people see their credit score recover to its pre-refinance level within three to six months of refinancing. This timeline assumes you make all payments on time and do not take on new debt.

Your score can climb higher than it was before within six to twelve months, depending on how much refinancing improved your payment history and credit utilization. If you refinanced a high-interest credit card balance into a low-interest personal loan, the improvement can be dramatic — 20 to 50 points or more — because you went from a high utilization ratio to a low one.

If you refinanced a mortgage or auto loan (which already had good payment history), the improvement is usually more modest — 5 to 15 points — because you are not changing your utilization ratio, only adding a new account and a hard inquiry to your report.

Timing your refinance to minimize credit impact

If your credit score is borderline for another financial goal — like buying a home or getting a credit card — you may want to wait a few months before refinancing. The initial dip of 5 to 10 points could push you below a lender's threshold.

However, if refinancing will save you significant money on interest, the short-term credit score dip is usually worth it. A lower interest rate means lower monthly payments and less total interest paid over the life of the loan. The money you save almost always outweighs the temporary credit score impact.

If you are planning to apply for a mortgage or other major loan within the next few months, ask your current lender whether refinancing now or waiting will affect your approval odds. Some lenders care more about the hard inquiry than others, and timing can matter.

Frequently Asked Questions

How much will my credit score drop when I refinance?

Most people see a drop of 5 to 10 points from the hard inquiry and new account opening. Mortgage refinancing may cause a slightly larger dip — up to 15 points — because the amounts involved are larger. The drop is temporary and usually recovers within three to six months.

Can I refinance if my credit score is low?

Yes, but you may not get the best interest rate. Lenders offer lower rates to borrowers with higher credit scores. If your score is below 620, many traditional lenders will not refinance you at all, though some credit unions and specialized lenders may. A lower rate is the main reason to refinance, so if you cannot get a better rate, refinancing may not be worth the credit score dip.

Should I close my old loan account after refinancing?

No. Closing the account will hurt your credit score more than leaving it open. If it is a credit card, keep it open and use it occasionally. If it is a mortgage or auto loan, the account will close automatically once the balance reaches zero, so you do not need to do anything.

Will refinancing hurt my chances of getting approved for a mortgage?

A refinance within the last few months may lower your score slightly, but most mortgage lenders focus more on your overall credit history and debt-to-income ratio than on a recent hard inquiry. If you are planning to buy a home soon, ask your mortgage lender whether refinancing now or waiting makes more sense for your situation.

How long does it take for my credit score to go back up after refinancing?

Most people see their score recover to its pre-refinance level within three to six months. Your score can climb higher than it was before within six to twelve months, especially if refinancing lowered your credit utilization ratio or made your monthly payment easier to manage on time.