It’s important to know if refinancing will affect your credit score before you start down this path. With the information in this article, you’ll be able to make an informed decision on whether or not to take this step to change your finances.
What Doesn’t Affect Your Credit Score?
Not every financial decision you make will affect your credit score. For example, seeking financial advice will have no bearing on your numbers, and the benefits of soliciting credit repair help far outweigh how much credit repair companies might charge. Additionally, your demographics (race, gender, etc.) will not impact your score–everyone is ranked according to their financial behavior, not who they are.
Perhaps you’re concerned about the ‘buy now, pay later’ plans that you are involved with and want to know if Afterpay affects credit. Even though Afterpay is similar in concept to credit cards, it does not impact your score. Afterpay and other programs like this do not report to credit agencies, so credit agencies won’t know you’ve signed up for them.
So, What Affects Your Credit Score?
There are several items that will definitely affect your credit score. They won’t all have the same impact, but it’s crucial to be mindful of them.
Making Payments on Time
If you’re making all of your payments on time, your credit score will likely be higher as a result. On the other hand, missing payments can cause it to drop.
Credit Utilization Rate
The amount of debt you carry versus your credit limit plays a role in your overall score, too. The less debt you’re carrying, the better off you’ll be.
In addition to your regular credit limit, you may also have a cash advance limit. You can use a credit card at an ATM to take a cash advance–keep in mind, though, that this will raise your credit utilization rate and will therefore affect your credit. For that reason, it may be best not to do this unless you absolutely have to.
Length of Credit History
Believe it or not, your credit score may be lower when you get your first credit card, even if you’ve never racked up any debt. This is because the length of your credit history is one of the factors used to determine your credit score. The longer you have financial obligations and stay current on your payments, the higher your score will be.
Credit Mix
This doesn’t account for much of your score, but carrying different types of debt has a positive impact on the number. For example, having student loans, car loans, and a mortgage looks better to potential lenders than just having a credit card.
New Credit and Credit Inquiries
Taking out new loans or credit cards will negatively impact your credit score for a short period of time because these lenders will read your credit report. This is known as a ‘hard inquiry’ and will affect your score.
If you’re talking to multiple lenders to refinance your loans, they’ll each be running hard inquiries on your credit report. Each inquiry will show up on your credit score. However, hard inquiries only stay on your credit report for a maximum of two years and may not affect your numbers for that long. The money you’ll save by refinancing may be worth a temporary dip in your score.
Additionally, when you take out a new loan to refinance, your old loan closes. Your history of making on-time payments will still be on your report, but your old debt now be rolled into your new loan. This can lower your credit history and negatively impact your score as a result.
To lessen the effect of refinancing on your credit score, be sure to pay your new loan on time every month. You should also apply for loans in a short period of time, as several inquiries in a fourteen to forty-five-day period may actually be considered one inquiry. If you apply every few months, on the other hand, each inquiry will count against you more.
How Much Does It Cost to Use a Credit Repair Company?
Refinancing your loans may impact your credit score for some time, but you’ll save money if you get a lower interest rate and can reduce the amount of your monthly payments. If you want help repairing your credit score, the cost will vary because programs are individualized–each person is evaluated on a case-by-case basis.
For the best personalized credit repair advice to help get your credit back on track, The Phenix Group is here to help! Contact us today and we’ll get started on your path back to great credit health.