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Credit and Refinancing 4 Things to Consider

Credit and Refinancing: 4 Things to Consider

Just as employers pull background checks and references, financial institutions pull your credit rating to determine trustworthiness. Building a healthy credit profile isn’t something you want to forget about. Even high-net worth individuals need to think strategically about their credit.

If you’re looking into buying a house or refinancing your student loans, understanding your credit score is key. Here are a few tips for understanding how credit impacts your financial well-being, and your ability to refinance student loans at a lower rate.

  1. A soft credit pull can help you analyze your financial footing.
    Free websites like Credit Karma perform a “soft credit pull,” which doesn’t impact your credit card score. A hard credit pull, or credit inquiry, takes place when you apply to open a new line of credit. When you check your score, you should do a general credit health check. Ask yourself whether you’re living within your means. Are you able to pay your credit card in full each month? If you do carry a balance month-to-month, are you at least making minimum payments by the due date? Customers who max out their credit cards each month appear to be higher risks than those who utilize less than 30% of their credit. Refinancing is part of your overall financial picture – when considering refinancing, check the lender’s specific requirements, and make sure you’re using credit responsibly.

  2. Your credit score is affected by numerous behaviors.
    Your FICO score, is an average of dozens of credit scores, and takes into account your payment history, amounts owed, length of credit history, credit mix, and new credit. Most fin-techs and banks look at your FICO score when determining whether you qualify for refinancing. They treat it as a barometer of how likely you are to repay your loan, and keep up with your payments.

  3. If you regularly miss payments on your student loans or credit card, it can take a while to rebuild your credit score – even up to several years. Check each lender’s before you refinance.

  4. You have the ability to correct errors on your credit report.
    If you are denied refinancing because of factors like hard pulls you didn’t authorize, some financial organizations will work with you. With Commerce, you’ll have a dedicated private banker to help you assess all options.

  5. If you decide to refinance, you will see a hard pull on your credit.
    This may bump your credit score down a few points, since you’re applying for new credit. Refinancing also means your old loans will be paid off, leading to a closed account. Make sure you’ve thought through the pros and cons – will refinancing save you money in interest? Will it allow you to lengthen your repayment term?

Using credit responsibly is a behavior all consumers should strive for. Be sure to understand your current financial footing before making a big decision, like refinancing student loans or applying for a mortgage. And, analyze your credit report to ensure accuracy. Organizations like Commerce will work with you to determine whether you’re eligible to refinance, and potentially save thousands over the life of your loan.

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