How Your Credit Score Affects Refinancing Your Mortgage

Refinancing your mortgage can allow you to lock in a lower interest rate and reduce your total mortgage costs. It could even result in a lower monthly payment.

Refinancing can also be a strategy for converting home equity into cash. No matter your goals, the refinancing process involves taking out a new loan and using the proceeds to pay off your original mortgage. Your new home loan will have a fresh interest rate, mortgage payment and term.

Every lender is different, but most require a credit score of at least 620 to qualify for a refinance loan. The stronger your credit score, the more likely you'll be able to secure a competitive interest rate.

What is a Credit Score?

Your credit score is a reflection of your general credit health and is based on the information contained in your credit reports. Your credit reports provide a summary of your credit history—the good, the bad and the ugly—and are a reflection of your ability to pay your debts on time.

A credit score will take the following information into account:

• Your payment history
• Your open account balances
• Credit inquiries
• Any accounts that are delinquent or have been sent to collections
• Previous bankruptcies

There are three main credit reporting bureaus (Experian, Equifax and TransUnion), and each one maintains its own credit report for you.

What Are Credit Score Ranges?

There are several different credit score models, but 90% of top lenders use FICO Scores. Most credit scores range from 300 to 850. Below is a breakdown of the FICO Score range:

• Less than 580: Poor
• 580 to 669: Fair
• 670 to 739: Good
• 740 to 799: Very good
• 800 or higher: Exceptional

Factors that Impact Your Credit Score

Your credit score provides lenders with a quick glimpse of your credit health. According to Experian, the following factors are used to calculate your credit score:

• Payment history: 35%
• Amounts owed: 30%
• Credit history: 15%
• Credit mix: 10%
• New credit: 10%

Your payment history and amounts owed make up the biggest piece of the pie. Keeping your debt balances low and having a track record of on-time payments can go a long way in helping you maintain strong credit.

Is a Credit Score Important for Refinancing?

Having a strong credit score suggests that you're a trustworthy borrower. Mortgage lenders typically check your credit score before approving you for a new loan or credit card. Having poor credit could make it difficult to get approved for a refinance loan, or any type of new credit.

Minimum credit score requirements vary, depending on the lender and loan type, but the best interest rates and most favorable terms are typically reserved for borrowers with strong credit.

What Credit Score Is Needed To Refinance?

Since refinancing your mortgage requires you to take out a new mortgage loan, lenders will check your credit score during the application process. Having said that, you'll likely need a score of at least 620 to refinance using a conventional loan.

However, FHA refinance loans typically require a credit score of 580 or higher. This type of government-backed loan, which is insured by the Federal Housing Administration, tends to have looser credit requirements.

How Credit Scores Affect Refinancing Rates and Terms

A lower credit score could leave you stuck with a higher interest rate—and that could add up to a big expense if you're borrowing hundreds of thousands of dollars. For example, according to data published by Experian from January 2025, a borrower with a credit score of 780 had the potential to save more than $150 per month over a borrower with a credit score of 620.

Improving Your Credit Score for Refinancing

Whether you're applying for a traditional loan refinance or a cash-out refinance, taking steps to improve your credit score could help you get a lower rate. Below are some simple ways to do just that, according to the Consumer Financial Protection Bureau:

Check your credit report for errors

Mistakes on your credit report, such as delinquent notices, could drag down your score. Get in the habit of reviewing your credit reports once a year, which you can do for free at AnnualCreditReport.com. If you find any inaccuracies, contact each credit bureau immediately to dispute them and have them removed.

Make all payments on time

Remember that your payment history makes up 35% of your FICO Score. What's more, a single late payment will likely remain on your credit report for seven years. The best thing you can do for your credit health is make timely payments. Updating your budget and enrolling in auto-pay can help prevent a missed payment.

Pay down debt and keep your balances low

How much you owe is the second-biggest factor that affects your credit score. One rule of thumb is to keep each balance at or below 30% of your credit line. For example, if you have a credit card with a $1,000 limit, try not to carry a balance that exceeds $300.

Avoid applying for new credit before refinancing

A single inquiry won't have a huge impact on your score, but applying for multiple lines of credit in a short period of time can result in several hard credit inquiries—and a credit score drop. Each one could temporarily reduce your credit score by five to 10 points.

Can Mortgage Refinancing Impact My Credit Score?

The short answer is yes. Any time you apply for a line of credit, whether a loan or a credit card, your score will take somewhat of a hit—but it shouldn’t be much. And as long as you start making on-time payments and continuing paying your bills on time, your credit score can recover quickly.

There are other factors that can impact how your credit score responds to applying for a refinancing loan, such as how many loan applications you submit at once and your credit utilization rate (how much of your available credit you are using). After taking out a refinance loan, continuing to make on-time payments to improve your credit utilization rate should help.

Alternative Refinancing Options

A traditional mortgage refinance involves taking out a new conventional loan in the amount of your outstanding loan balance. But that isn't your only option. Below are some alternatives to consider:

Government-backed refinancing programs

If you already have a government-insured mortgage, it may be possible to refinance using an FHA, VA or USDA loan. That includes an FHA cash-out refinance loan. These loans typically have more flexible credit requirements, but you'll want to ensure that the total cost is worth the savings.

Cash-out refinancing

This involves taking out a larger loan that exceeds your current mortgage balance. That way you'll have some extra money when your refinance is complete. You can use that lump-sum payment to cover all kinds of costs, whether that's paying for college or completing home improvement projects. An added perk is that this cash doesn't count as taxable income. You'll likely need a credit score of 620 or higher to qualify for these additional funds.

Refinancing with a co-signer

If your credit could use some work, you may be able to apply for a refinance loan with a co-signer (preferably someone with strong credit). That could make you a more attractive borrower. By co-signing, they agree to take responsibility for the loan if you stop making payments. However, it’s important to note that you would likely need to meet minimum credit score requirements to be approved for this type of loan.

When to Consider Refinancing

Refinancing comes with closing costs and lender fees—and the average cost typically ranges anywhere from 3% to 6% of the loan amount. But those one-time expenses may be well worth it if you save money in the long run.

You might consider refinancing your mortgage if:

• Interest rates are declining and are lower than your current mortgage rate.
• Your credit score has improved and refinancing could get you a lower rate.
• You want to change your loan term or type. For example, you might want to switch from a 30-year loan to a 15-year loan, or change to an adjustable-rate mortgage.
• You’ve built substantial equity in your home. This could unlock a significant amount of cash if you're in a financial bind.

If you have built enough equity in your home, you may be able to finance the closing costs into your new loan, which can be helpful to limit out-of-pocket costs during closing.

The Bottom Line

No matter which type of refinancing you're considering, you can expect your credit score to be an important factor. That's because refinance lenders want reassurance that you're a qualified borrower who will repay their loan on time. They'll also look at your income, assets and overall financial health.

Taking steps to improve your credit could help you qualify for a lower interest rate—and save you money in the long term. However, you’ll still need to plan for closing costs. There are also some potential risks of refinancing. If you aren't sure where to start, a mortgage professional can answer your questions and provide personalized guidance.