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Last updated on February 3rd, 2021 at 11:47 am
Covid 19 pandemic has impacted the finances of many Americans some good, some bad.
Resulting in the mortgage refinance rates to drop to near-record lows. Since March 2020, the Federal Reserve has cut interest rates twice to help the economy.
If you are considering a refinance option, research the impact it could have on your personal finances (specifically, if refinancing hurts your credit score). Here’s what you need to know.
A mortgage refinance can potentially affect your credit score. When you compare rates with lenders, they will check your credit score to provide you with the most accurate offer.
If you obtain multiple rates, you could have your credit checked multiple times. So check if the lender performs a hard or a soft inquiry.
A soft inquiry won’t impact your credit score. It is only visible to you on your credit report.
In fact, creditors are pulling soft inquiries on you often when they send credit card or loan offers to you in the mail.
A soft inquiry also happens when you check your own credit score or if a potential employer does a background check on you.
If you’re simply checking rates during your consideration process, be sure to choose lenders that offer soft inquiries, as not all banks and credit unions do.
A hard inquiry, however, will affect your credit score. It is visible to creditors and stays on your report for two years.
Hard inquiries are reported to the three major credit-reporting agencies: Equifax, Experian, and TransUnion.
This type of inquiry indicates the number of new credit applications you’ve completed. They lower your credit score and only account for around 10% of your number.
If you have too many hard inquiries, you may look like someone who is applying for several loans, and a lender could consider you a high-risk borrower.
Under the latest FICO scoring model, it’s good to know that multiple credit checks from mortgage lenders within a 45-day period are recorded as a single inquiry.
The 45-day rule only applies to credit checks from mortgage lenders, and not to other forms of credit, such as credit cards.
While a hard inquiry may save you money over the term of the loan, it’s best to choose the options to protect your credit score, as well.
You might want to pull your credit history before starting the application process.
Or ask to be prequalified by a lender because prequalification involves a soft inquiry and provides you with an idea of what kind of rate you can get.
However, being prequalified doesn’t guarantee you’ll get a loan or a specific rate.
Reference Source: Fox Business
