Don't Refinance Your Mortgage if This Applies to You

A homeowner stands in his kitchen and is on the phone with his loan servicer.

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Refinancing could be a money-saver, but you need to do it at the right time.


Key points

  • Refinancing a mortgage is a great way to lower your monthly payments.
  • Your goal in refinancing should be to snag the lowest interest rate on your loan possible, and if you can't do that, then it pays to wait.


There may come a point when you start thinking about refinancing your mortgage. It could be that you've been in your home for a while, and interest rates have come down since you first signed your mortgage. Or, it could be that you recently made the decision to stay in your home rather than move, and so now, you want to see how much savings you can reap by swapping your existing mortgage for a new one.

While refinancing could definitely shave some money off of your monthly housing costs, it's important to refinance at the right time. You might consider postponing your refinance application if this one situation applies to you.

When your credit score takes a hit

There are different reasons why your credit score might drop. If you're late making a payment on an outstanding loan or credit card, you'll generally be reported as late, and even one such incident could drag your score down a lot.

Your credit score could also drop if you're forced to rack up a large credit card balance. A big factor that goes into calculating your score is your credit utilization ratio, which measures how much of your available credit line you're using at once. A large balance means a higher utilization ratio -- and more credit score damage, at least while you're carrying that balance.

In addition to a late payment or high credit card balance, your credit score may have gone down if you've recently applied for several new credit cards in a short period of time. Each time you submit a credit card application, a hard inquiry is made on your record that could result in a minor credit score hit. And while one hard inquiry won't cause much damage, several inquiries in short order could result in a more substantial drop.

Either way, if your credit score has recently taken a dip, you may want to hold off on applying to refinance your mortgage. One of the most important factors lenders will look at is your credit score because it speaks to how responsible you are as a borrower. The higher your score, the more likely you are to get approved for a new mortgage.

Just as importantly, a higher credit score will generally yield you a lower interest rate on your refinance. You want the lowest rate possible to reap the most savings.

How to raise your credit score

If you're interested in refinancing your mortgage, but your credit score needs work, here are some steps to take:

  • Pay your incoming bills on time
  • Pay off some credit card debt
  • Ask for a credit limit increase, which can also help your utilization ratio improve
  • Check your credit report for errors and correct mistakes that could be damaging your score (like delinquent debts you've already settled)
  • Avoid applying for new loans and credit cards, so no more hard inquiries are made against your record for a while

A great credit score could be your ticket to an affordable refinance. If your score needs work, take a little time to boost it before submitting those applications for a new mortgage.

Our Research Expert