I feel like nobody read and directly answered the question. A rate and term refinance would not hurt your credit scores at all. If you increased your loan amount substantially thru cash-out that was not applied to debt reporting on your credit then the percentage ratio of debt increase would lower your scores. Like when you bought a home initially you took on a new large debt so your scores dropped 20 - 40 points and after benchmark periods on a new term loan your scores begin to recover the loss. Term loans are meant to leave debt on your reporting with incremental payments gradually decreasing that items debt ratio. Benchmarks are another ratio in the algorithm they each have. 12, 24, 36 months and so on. On a new term debt loan it burdens your scores less and less each 12 months you have good payment history, even though the debt ratio is barely paid own. It's a shock payment/debt factor that you are showing success in handling.
I want to go back to ratios. All credit scoring methods revolve around the ratio of time good or negative. Debt ratio per trade line and overall is the key. That and knowing that any balance left unpaid on a credit card each month is a negative even if you never miss a payment. Revolving credit lines or credit card are meant to be paid of to zero each month. You are supposed to use them as credit to pay off not as a variable term loan as many Americans seem to practice. I educate every client of this when I am disclosing their credit scores. I provide the full credit report and use it as the tool to help them understand how we read credit and more importantly, how the scoring models evaluate the reporting.
Ratio of debt from revolving credit (get it? revolving door means you pay it right back.) or credit cards with unpaid balances hurt your scores more according to the ratio of the credit limit left unpaid. Example: $1000 balance on $5000 limit card is a 20% ratio and holds less negative scoring weight than $3000 balance on the card at a 60% unpaid balance. People really destroy their credit when they leave more than 50% of the available credit limit left unpaid. They used revolving funds that were supposed to be paid back on the monthly due date. No late payment is assessed. Banks love you leaving unpaid balances that they can increase the rate on at will. They often increase the limit so you can borrow more and earn them much more. They even give you a minimum payment so you can be an addict for life. lol.
The take away is use credit cards like an adult and pay them off with money you have. They are not to be used as a term loan. Term loans with high ratios are fine and do not hurt credit scores. You are paying them incrementally over long periods as per your agreement. $1 on a revolving credit account is a negative. You left an unpaid balance and are breaking the agreement to repay the full credit extended to you. Once again the ratio of debt to available credit limit on each account determines the weight of the negative affect on scoring your credit.
Never mising a pay but continually increasing your unpaid debt ratios either in dollar or percentage will continue to lower your scores by greater affect as that ratio or dollar balance grows over time.
I'm coding educational videos, tools, and publications on my website. You can learn more there as I post new tutorials and material to educate my clients and the public. I provide credit repair services to my mortgage clients who benefit by an improvement we can document as an error or mistake. I do this free to help them. I provide education on all homeownership, credit, finance, mortgage, real estate, and life for all. Feel free to contact me with any questions and I will be happy to help. My goal is to teach you the consumer you to help yourself by learning the facts and understanding these important life altering common consumer practices.
I will update this posted reply with direct page links to pages related to each specific item. Like how to monitor your credit for free, ratios of debt in relation to credit report trade lines and overall debt factoring per type. Just visit my homepage and you will see a new piece every few days. I'll try to get to these topics quicker for you. You can also request educational content via email from any page on my website.
Michael Angelo Worthen
Mortgage Banker / MLO NMLS: 851810
NewCastle Home Loans | NMLS: 150580
HUD Approved Lender 2074900006 | 69 N Gore Ave, Saint Louis, MO 63119
Ph: 314-219-5989 | Cell: 314-365-6303 | TF: 855-630-5626 (LOAN) | Fax: 866-766-4413