Here's What Happened to My Credit Score When I Refinanced My Mortgage

Refinancing my mortgage didn't hurt my credit as much as I thought it would.

Mortgage refinance rates have been sitting at or near record lows since the summer. As such, my husband and I made the decision to refinance our mortgage during the latter part of 2020. Even though we were already paying a pretty low interest rate on our home loan, refinancing would enable us to lower our rate by almost 1%. Furthermore, we were able to find a refinance lender with very reasonable closing costs. So all told, the move made sense.

In the weeks leading up to our refinance application, my husband and I made certain to check our credit reports for errors and make sure our credit scores were in good shape. As such, I knew exactly what score I was looking at before my refinance applications went through. And thankfully, my score didn't change that much in the course of refinancing.

My credit score took a minor hit

Whenever you apply for a new loan, a lender will perform a credit check to make sure you're a trustworthy borrowing candidate. That's called a hard inquiry on your credit, and it can cause your score to drop. But thankfully, that hit is usually minor. In most cases, a single hard inquiry will lower your credit score by five to 10 points, and my experience was consistent with that.

Refinancing my mortgage dropped my score by seven points. Since my score was strong to begin with, that wasn't bothersome at all -- especially since it was also expected. But I did take steps to keep my credit score hit to a minimum.

See, when I refinanced my mortgage, I didn't just apply with one lender and call it a day. Instead, I shopped around for offers from multiple lenders.

Since each lender sets its own rates and closing costs, I figured that gathering a few offers would help me know if I was getting a good deal. And because I did all of my rate shopping within 14 days, my score wasn't dinged multiple times. Instead, all of those mortgage loan inquiries counted as a single hard inquiry on my record, so even though I reached out to a handful of lenders, that didn't count against me.

The smart way to mortgage shop

If you're going to refinance a mortgage, shopping around makes sense. But don't drag the process out, because if you do, your credit score might take a needless hit.

Now if you're starting out with a very high score, the reality is that even two or three hard inquiries may not hurt you so much. For example, if your score goes from an 830 to an 810 in the course of your rate shopping, that's not terrible. An 810 is still excellent, and you'll generally be treated the same from a borrowing perspective once your score reaches the upper 700s -- meaning, lenders won't really distinguish a 795 or an 807 from an 822. But if you'd rather minimize that hit, do your rate shopping within 14 days.

One final thing you should know is that hard inquiries generally stay on your credit report for two years. That's not a super long period of time, but it's also not that short. As such, it pays to limit the number of hard inquiries you have if that option exists. Refinancing strategically helped me do just that.