Does Refinancing Hurt Your Credit?

Key takeaways:

Refinancing can temporarily hurt your credit score, but it may be worth it to save money in the long run.
You can minimize the impact refinancing has on your credit by maintaining a high credit score, utilizing prequalification tools, and applying when interest rates drop in the market.
After refinancing, make all payments on time for your new loan to help your credit score bounce back quickly.

When you loan money, it’s ideal to borrow with the best and most affordable terms possible for your budget. However, accessing low-interest rates or lower monthly payments may not have been possible when you initially got a loan. In that case, refinancing could be worth considering since it might save you a significant amount of money—especially if there’s a lot of time left in the loan.

But before you jump into refinancing something as important as a personal loan, auto loan, or mortgage, it’s essential to understand how it can affect your credit. Whether you’ve decided to refinance or are still weighing your options, here’s what you need to know in terms of how it can impact your credit standing.

Does refinancing hurt your credit?

Refinancing will initially hurt your credit score because it requires a hard inquiry and will affect the number of credit accounts on your report. However, this financial strategy can lower your monthly payment and save you on interest. In this case, it may help your debt become easier to pay off and might help increase your score, which could ultimately better your financial position in the long run.

Eventually, your credit score will likely improve as you pay off this new loan. But, when it comes to refinancing, it’s necessary to consider all the ways it can negatively impact your credit too.

How refinancing can lower your credit score

There are a few ways refinancing can lower your credit score:

Hard credit check. Any time you apply for a new line of credit, a lender must check your credit report with a hard pull or inquiry. This part of the process allows lenders to weigh your creditworthiness for approval on a loan. Once authorized, your credit score typically drops around 5–10 points. After 2 years, the initial inquiry falls off and is no longer factored into your credit score.
Multiple loan applications. To find the best loan options possible, you can have your credit pulled at numerous financial institutions. Normally, applying with different lenders counts as a hard inquiry each time, which can decrease your score. To minimize this, inquire with all of them within a short time frame. Most credit scoring models will treat them as 1 inquiry if they’re all done within a 14 to 45-day window.
Closing an account. When you refinance, the original loan closes. This reflects on your credit report, but the impact it has on your score depends on the size and age of the account. If the closed account was in good standing, this could lessen the hit to your credit score.

Common types of refinancing that can impact your credit

If you have a current loan that doesn’t have a decent interest rate and your credit score has gone up, it may be in your best interest to refinance now, even if it will slightly hurt your credit. Refinancing could help you pay off your loan quicker, which could then improve your credit score in most cases.

It’s crucial to know how common types of refinancing can factor into your credit.

Refinancing a personal loan

You can refinance a personal loan. This is often a smart move if your credit score has gone up or rates have lowered since your original loan was processed. You should also consider refinancing a personal loan if you want to avoid paying a balloon payment or switch from a varied interest rate to a fixed one for more financial stability.

You might want to lower your monthly debt or consolidate several personal loans into one larger loan with lower interest. With more money going toward the loan amount and less toward interest, you could then pay off your debt faster.

When refinancing a personal loan, there are some main unfavorable factors to look out for:

Being unable to qualify for better interest rates or terms
Fees or penalties outweighing your savings
Preparing to finance another purchase that could decrease your credit score

Pro tip: Many personal loan providers offer a free way to check your eligibility online. For instance, you can prequalify for a personal loan through Upstart within minutes and view loan terms available for you.

Refinancing an auto loan

When you refinance an auto loan, you could gain access to a lower interest rate if current rates have fallen, your credit score has gone up to better qualify, or if you financed the car through a dealership where competitive rates weren’t offered. Refinancing can also lower your monthly auto payment by spreading out repayment over a longer amount of time.

It’s best to refinance a car loan if your car is worth more than the outstanding balance of your current loan, as cars quickly depreciate in value. Lenders can take this into account when determining to extend your payoff.

Refinancing a mortgage

Usually, it’s most beneficial to refinance your mortgage when it can help lower your monthly payments. Typically, refinancing extends payments out over a longer period of time, which results in paying more interest in the end. If refinancing moves you from an FHA-backed loan to a conventional loan, you may also be able to eliminate mortgage insurance premiums. Depending on the terms you receive, refinancing your mortgage could give you much more wiggle room in your budget.

It’s important to note that when you refinance a mortgage, you’ll also come across closing costs, like origination fees, or costs for a new appraisal, title insurance, and taxes. These costs commonly make up between 2% and 5% of the total loan amount.

How to prepare your credit for refinancing

If you’re worried about how refinancing may affect your credit, there are a few things you can keep in mind for better preparation. Planning ahead can get you in a position where refinancing won’t negatively affect your credit score and overall financial health.

Maintain a high credit score. Keep a close eye on your credit report and, if necessary, get your credit score into shape before refinancing. Without a good credit score, you won’t be able to effectively negotiate refinancing terms. Make sure you’re paying your current loan on time and dispute any errors you may find in your credit report.

Prequalification tools. Rather than taking a chance at your credit score dipping and getting denied a loan, use a prequalification tool beforehand. This can give you a better idea of your chance of approval, along with what loans and terms you may be eligible for.

Pro tip: If you’re considering refinancing a personal loan, check your rate through Upstart to get personalized terms. With a soft credit pull, our model considers more than your credit score when determining your loan terms, such as your education¹ and employment.

Plan accordingly. Monitor the average interest rates on the market for your loan type before you refinance. Aim to apply for a new loan whenever the interest rates are lowest. Getting a better deal on your new loan can make it easier to manage your debt and regrow your credit.

Next steps after refinancing

Your score is there to get more affordable loans with terms that work best for you. Take advantage of your credit and refinance if it makes sense for your financial situation.

Looking ahead after refinancing, focus on proving your ability to repay the new loan on time and rebuilding your credit score. It should be relatively easy to increase your credit to the number it was before you refinanced your loan in a matter of a few months. Your credit score may even improve if you’ve handled the loan well enough.

As long as you take preventative measures and know what to expect, you shouldn’t struggle with the refinancing process. At the end of the day, you should look forward to having more money in your wallet.

¹Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.

Upstart Network, Inc. (NMLS #936133) is not a lender. All loans on its marketplace are made by regulated financial institutions.

All mortgage lending is conducted by Upstart Mortgage, LLC dba Upstart Home Lending. (NMLS #2443873). Equal Housing Opportunity.

Checking your rate won’t affect your credit score: When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information may be reported to the credit bureaus.
Upstart’s model considers education: Neither Upstart nor its lending partners have a minimum educational attainment requirement in order to be eligible for a loan.
41% more approvals and 33% lower rates than a traditional model: As of publication in April 2026, and based on a comparison between the Upstart model and a hypothetical traditional model using Upstart data from Jan – Dec 2025. For more information on the methodology behind this study, please see Upstart’s Annual Access to Credit results here.
Unsecured Loans: While most loans through Upstart are unsecured, certain lenders may place a lien on other accounts you hold with the same institution. There may be an option to secure your personal loan through Upstart with your vehicle, which will require a lien to be placed on the vehicle. It is important to review your promissory note for these details before accepting your loan.
Loan amounts from $1,000 -$75,000: Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($1,500), MA ($7,000). Maximum loan amounts may vary by state.
Closing and funding timeline: In April 2026, 10% of funded HELOCs achieved a closing timeline of 2 days or less and a funding timeline of 7 days or less. This timeline assumes consumers close with our remote online notary, provide supporting documentation promptly, and ensure the information provided is accurate and consistent with our verification process. Delays, discrepancies, and other unforeseen factors may impact the closing timeline. MBA’s 2025 Home Lending Study reports an average industry closing time of 37 days.
APRs from 6.2% – 35.99%, with 3 or 5 year terms: The full range of available rates varies by state. The lowest rates are only available to the most qualified applicants. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 17.50% and a 7.25% origination fee of $725, for an APR of 21.23%. In this example, the borrower will receive $9275 and will make 60 monthly payments of $252. APR is calculated based on 5-year rates offered in March 2026. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
Instant deposits: To receive instant funding, your bank account must support instant transfers. If your account does not support instant transfers, funds will be available to you depending on your bank’s transaction processing time and policies.
Always On Commitment: We are committed to maintaining your credit limit as long as you continue to meet program eligibility and account requirements. To ensure the safety and security of all our members, we reserve the right to adjust or close lines in specific circumstances, including account default or late payments, suspected fraud, violation of our terms of service (including abusive behavior), or when necessitated by legal or regulatory requirements.
Cash Line draws: You may request a draw at any time. Only one draw may be outstanding at a time; after it is fully repaid, you may request another.
HELOC APRs as low as 6.52%: Terms shown here are subject to change without notice. APRs for initial advances range from 6.52% to 18.00% based on rates offered as of April 2026. The lowest rate is only available to consumers willing to become a member of a credit union and to those who meet a minimum FICO score of 780, CLTV under 70%, and DTI under 45%. Your actual rate will depend on many factors such as your credit history, combined loan-to-value ratio (CLTV), line amount, loan term, lien position, and property state. Origination fee to open an account is between 0% and 4.99% of the approved credit limit. The Annual Percentage Rate (“APR”) is variable and based on the Prime Rate as published in the Wall Street Journal “Money Rates” table plus or minus a margin. Your APR will never be less than 3.99% or greater than 18.00%. Property insurance is required.
No annual fee, prepayment penalty, or fees to redraw: Terms shown here are subject to change without notice. Origination fee to open an account is between 0% and 4.99% of the approved credit limit. The Annual Percentage Rate (“APR”) is variable and based on the Prime Rate as published in the Wall Street Journal “Money Rates” table plus or minus a margin. Your APR will never be less than 3.99% or greater than 18.00%. Property insurance is required.
2,500+ Variables:As of 3/31/2026. “Variables,” often also referred to as “features,” refers to raw variables and combined variables considered in our AI models. A “raw” variable is a non-combined, conceptually distinct unit of data, such as “applicant-reported savings.” A “combined” variable is data that has been transformed, combined, or otherwise engineered from a raw variable or set of raw variables, such as “applicant-reported savings” divided by “loan amount.
Fully automated loans: In Q2 2026. Percentage of Loans Fully Automated, which is defined as the total number of loans in a given period originated end-to-end (from initial rate request to final funding for personal loans and small dollar loans, and from initial rate request to signing of the loan agreement for auto loans) with no human involvement required by the Company divided by the Transaction Volume, Number of Loans in the same period.

Does Refinancing Hurt Your Credit? What You Can Expect