Does Refinancing Affect Credit Score? Myth vs. Reality

Does refinancing affect credit score? This question has become increasingly important in recent years, as more and more people turn to refinancing to help with their current financial situations.

A record number of Aussie homeowners have opted to refinance their home loans since the cash rate began rising in 2022 – and more recently as rate cuts and fierce competition between lenders have triggered a new wave of refinancing. In 2024 alone, around $206 billion worth of loans were refinanced, and in the June 2025 quarter owner-occupiers refinanced more than $41.5 billion externally – the highest level since late 2023. That’s thousands of Australians each week looking for a better deal on their mortgage.

But despite the obvious benefits, some people are reluctant to refinance. Why? They’re worried that refinancing will hurt their credit score. Is that a legitimate concern? Does refinancing affect a credit score? And if so, how does refinancing affect your credit score in both the short and long term?

Understanding Credit Scores

It turns out the average Aussie is still a little unsure when it comes to credit scores. Recent Finder research shows that around 69% of Australians don’t know their current credit score, even though checking it only takes a few minutes.

So, what is a credit score? Basically, it’s a number (usually between 0 and 1,000 or 0 and 1,200 depending on the credit bureau) that you’re assigned by a credit reporting agency. How does a credit score affect refinancing? Lenders use this score – along with your income, expenses and overall profile – to assess whether or not they should loan you money. A high credit score is an indication that you’re financially responsible, while a low credit score could make it difficult for you to obtain a loan or access sharper rates.

Does Refinancing Affect Credit Score or Is It Just a Myth?

Does refinancing affect credit score in a negative way? This is a common question because of certain myths about the impact refinancing has on a credit score and what happens when lenders perform credit checks.

Myth #1: Refinancing Always Damages Credit Scores

Reality: While refinancing can cause a small, short-term dip in your credit score (because of the lender’s credit enquiry and any new account being opened), refinancing can actually lead to long-term credit score improvement if it helps you manage your repayments more comfortably. Paying your loan on time, every time, after a refinance is one of the best ways to show you’re a lower-risk borrower – so in the long run, does refinancing affect credit score in a positive way? It absolutely can.

Myth #2: Refinancing Hurts Credit Permanently

Reality: Credit scores are designed to move up and down over time. If you see a slight drop when you apply, it usually doesn’t last. Scores tend to bounce back relatively quickly if you take positive steps to improve your financial management (like paying your bills on time and keeping your credit usage under control). So if you’re asking, “does refinancing affect your credit score forever?” the answer is no – not if you handle your finances well afterward.

Myth #3: Multiple Refinances Always Harm Credit

Reality: Responsible and strategic refinancing (planned in consultation with a mortgage broker) doesn’t have to significantly impact a credit score. Multiple applications spread out over time, where each application is carefully considered, is very different from rapidly applying with lender after lender. A finance broker can help structure the process so that, when you do ask “does refinancing affect credit score?”, the impact is kept as small and manageable as possible.

How Does Refinancing Affect Your Credit Score in Practice?

So, how does refinancing affect your credit score in real-life scenarios? Your credit score may be temporarily lowered as a result of:

• Multiple loan enquiries over a short time period. Each full application usually involves a “hard” enquiry on your file. A cluster of enquiries can make it look like you’re urgently chasing credit.
• Closing a long-term loan. Your existing home loan contributes to your credit history length. When it’s closed and replaced, it can slightly change the average age of your accounts.
• Missing repayments while awaiting refinance approval. If you fall behind on your existing loan during the refinance process, this can have a much bigger impact than the refinance enquiry itself.

This is why talking to an experienced mortgage broker before you start applying is so important. They can help you map out where to apply, when to apply, and how to manage your existing loan during the transition so that when you ask “does refinancing affect credit score?” the answer is: “Yes, but only a little – and you’re managing that impact carefully.”

Does Credit Score Affect Refinancing?

Does credit score affect refinancing? Yes, absolutely. Your credit score will have an impact on the terms and interest rates you’re offered by the lender. A higher credit score may help you:

• Secure more competitive interest rates
• Access a wider range of lenders and products
• Qualify for lower-fee or more flexible loan options

A lower credit score, on the other hand, may:

• Limit the number of lenders willing to consider your application
• Lead to higher interest rates or extra conditions
• Make it more difficult to get approval at all

This highlights the importance of asking not only “does refinancing affect credit score?” but also “how can I improve my score before I refinance?” The stronger your credit profile, the more you can potentially benefit from refinancing.

How Can You Protect Your Credit Score During Refinancing?

You can protect your credit score during refinancing by:

• Minimising new credit applications. Avoid applying for multiple credit cards, personal loans or BNPL accounts at the same time you’re refinancing.
• Paying bills on time and avoiding major financial changes. Your repayment history is a major factor in whether refinancing affects credit score positively or negatively over time.
• Keeping credit card balances low. High utilisation (using a large percentage of your available limit) can drag your score down.
• Reviewing old accounts rather than closing them all at once. Sometimes keeping an older, well-managed account open can help maintain your credit history length – speak with a broker or financial adviser about what’s appropriate for you.
• Watching the types of loans or facilities you take on. Short-term money lenders, Afterpay-style facilities and similar products can be a sign you’re under financial pressure, which may be reflected in your score.
• Regularly monitoring your credit report. This helps you spot errors or fraudulent activity quickly.
• Consulting with a broker before applying to avoid multiple credit enquiries. A good broker will do as much “pre-work” as possible so you only lodge full applications where you have a strong chance of approval.

Handled this way, when you revisit the question “does refinancing affect credit score?”, you’ll see that most of the risk can be managed with the right strategy.

Ask a Mortgage Broker: Does Refinancing Affect Credit Score in the Long Run?

If you’re worried about the question, “how does refinancing affect your credit score and overall financial health?”, you’re not alone. But there are very practical steps you can take to minimise any short-term impact and maximise the long-term benefits. The key is to talk to an experienced mortgage broker near you.

Let them know you want to understand exactly how refinancing affects a credit score and how to structure applications so that, as much as possible, the answer to “does refinancing affect credit score?” is “only a little – and mostly for the better.”

At North Brisbane Home Loans, our experienced team of finance brokers understands the importance of protecting your credit score. That’s why we’ll only recommend a refinance loan if we believe your application has a strong chance of being approved on the first try.
We’ll also talk you through how refinancing affects a credit score in your specific situation, so you know what to expect before you proceed. To find out more, contact one of our mortgage brokers today and get personalised advice on your refinancing options.