Can Refinancing A Debt Affect Your Credit Score?

Refinancing debt in general doesn't negatively or positively affect your credit score. As far as what appears on credit report, all that will appear is that a debt has shifted from one credit card to another and it will not take into account the interest rate being paid or other factors which made it a good deal. Refinancing debt usually only matters in what the process does to human psychology.

Consumers tend to think that because $200 per month was freed up from the refinancing of their home or that they are now receiving 0% on a credit card balance that they were paying 13.9% on that it is the perfect time to use that extra money to go out and make new purchases. Individuals instead of being proactive and using the extra resources to pay down their existing debt faster tend to do the opposite and add additional debt.

As a result, a $10,000 balance is shifted from a high interest rate credit card to a zero interest rate credit card and then thousands of dollars are now added to the original credit. This is the type of activity that will show up on a credit report and nothing else. It is not so much a matter of credit financing with regards to interest rates but more a matter of credit utilization and their overall credit to debt ratio.

It is always wise to refinance debt to free up additional money or pay a lower interest rate on any outstanding debt. However, these smart financial moves won't necessarily show up on a credit report or be reflected in a FICO score. Refinancing whenever possible to alleviate the financial stresses that come with high interest rates and high monthly payments is the perfect opportunity to pay down debt. The resulting ability to make monthly payments consistently and on time while also reducing overall debt loads is what will affect your credit score.