Is refinancing worth the risk?

[grimlockgrill]

I was thinking about refinancing my auto but isn't it going to substantially drop my credit score?

[someonesomewhere]

That all depends. I mean if you're going to refi and your payment goes down by an amount you can now use to pay down CC balances, it might actually help your score, but likely not for a couple of months.

[justaguy]

It also depends on how many inquiries you already have on your report. If you have a few already, then another one might look like you are desperate, and drop your score a bit, but if you are relatively clear then one doesn't hurt that much.

[jq26]

I was thinking about refinancing my auto but isn't it going to substantially drop my credit score?

If it is a long-established tradeline with decent payment history, then it will probably drop your score when that tradeline gets closed and another brand new installment loan with a high balance starts to report.

But if you're saving money every month by refinancing the car, then unless you're about to buy a home, who cares about the credit score. It'll rebound in due time and you'll have cash to pay down other bills or to save.

[kevin3344]

Installment loans don't count as much as revolving accounts. Whenever I buy a new car and pay off an old one the change in my score is minor. If you really want to improve your score, work on your revolving credit utilization...that plays the biggest part in FICO scoring. For example, paying off a maxed out credit card (or one that is close to maxed out) could result in a jump of 50 points or more.

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Edited September 9, 2011 by kevin3344