The interest rate you have on your credit card may be so high that it makes it difficult for you to make your payments every month comfortably. Now that some time has passed, you may be able to look into credit card refinancing that will lower your interest rate and lower your payments in the process.
Unfortunately, some people fail to do this because they are concerned that their credit scores will decrease. They might go down, but this isn’t a good reason not to try credit card refinancing.
Refinancing hurts your credit scores for the following reasons:
You Are Closing an Account
When you refinance a credit card account, you must close your original account. If you have had the account for a long time, it is even worse. However, closing an account with no late or missed payments isn’t as devastating as closing an account with several missed payments.
Your credit scores will benefit as you begin to repay your new loan. Your scores will drop because your loan is new, but your credit scores will rise again after demonstrating that you can make your monthly payments.
You Are Filling Out Several Loan Applications at Once
It is in your best interests to apply for a loan with several different lenders. This is how you will find the lowest interest rates. The negative is that these will be hard inquiries, and hard inquiries will negatively affect your credit scores. To lessen the adverse effect, submit all of your applications in the shortest amount of time.
In most cases, the credit bureaus will consider all loan applications counted as one if you submit them between 14 days and 45 days. However, your credit scores will hit if you apply with different lenders in 7 months.
Several Credit Card Issuers Are Checking Your Credit Reports
Issuers want to know your credit scores and credit history before they decide to offer you a refinance loan. As was mentioned above, these are hard inquiries, but they only cause you to lose points for a short period. It is usually a slight drop, and the amount of money you save by refinancing often adds up to thousands of dollars, so the temporary reduction is worth it.
When Can You Refinance a Credit Card?
It’s not always the best time to refinance your credit card account. The best time to consider refinancing is if your credit score is higher than when you first received your credit card. If this is the case, you can qualify for a better interest rate, and a better interest rate means that the payment will be lower, and you will save money over the life of the loan.
According to SoFi Invest, applying for a credit card is a “soft pull,” so it will not affect your credit scores. However, they will only be involved after your application has been approved.