Refinancing and understanding your credit score.
How we can help you
Mortgage rates are low, which may have you wondering if you should be refinancing.
If you are thinking of refinancing your mortgage, contact us. We can answer your questions, determine your needs, and establish what would be the best mortgage option for you. We will guide you through the process quickly and efficiently and we have access to some of the lowest interest rates. Contact us today!
A lender will do a “hard inquiry”
One thing to keep in mind when you do refinance, is that your credit score can be affected.
When you apply for a new mortgage the lender will do what is called a “hard inquiry” on your credit score.
The lender will request your credit report from one of the major credit bureaus. Each time a lender does this, your credit score will be lowered by several points, and this typically could stay on your record for 24 months.
Checking rates and shopping around is fine, but the trouble comes with applying for multiple mortgages.
What can you do?
Most credit scoring models, treat all loan inquiries within a 30 to 45-day period as a single credit pull. So, it is best to submit all applications within that time to lesson the affect it has on your credit score. Some lenders use an older scoring model, so consider keeping your loan inquiries to 14 days.
Money you save refinancing
The money you save should make up for the dip to your credit score. Your credit score should improve if you keep up with your regular payments (a strong payment history is worth 35% of your score). And if you use the savings, you gain from refinancing to reduce your overall debt (your overall debt is responsible for 30% of your score).
You could be closing your oldest account
When you refinance, you are closing one account and opening another one. This is especially the case if you are switching lenders.
Your credit score factors in the age of your oldest account, and the average age across all accounts. That means that closing a long-standing account, could lower your credit score.
What can you do?
As you pay down the new loan, your credit score will start to creep back up. Otherwise, you will have to wait for your other credit accounts to age.
Be sure to use the savings from your new mortgage, to service your other debt. This will help you reduce the amounts you owe and lower the percentage of credit you are using.
Missing payments when changing loans
Sometimes homeowners miss a payment on their original mortgage when they assume the refinance loan has already gone through (Equifax).
Payment history is the most important factor in determining your credit score. Missing a payment or late payments can sink your score. This can stay on your credit report for up to seven years.
What can you do?
Keep making those payments on your old mortgage until you know that the new mortgage is in place.
Keep in contact with your Mortgage Broker.
Original Article – Money Wise
