The Quick Read: It can do both, and timing decides which one you see. The hard credit pull and the new account can cause a small dip at first. If you use the cash to pay down credit cards or auto loans, the score often rises within months. The gain fades if the balances come back.
What Is a Cash-Out Refinance, and Why Does It Touch Your Credit?
A cash-out refinance replaces your current mortgage with a bigger one. You keep the difference between the two loan amounts as cash. Because it is a brand-new loan, the lender checks your credit, and your credit file changes when the old loan closes and the new one opens.
Three things happen to your file. A lender runs a hard inquiry, which is a credit check tied to a real application. The old mortgage is reported closed. A new, larger mortgage account opens.
What you do with the cash then decides the longer story. Across the conventional programs we place files with, a one-unit principal residence typically reaches 80% loan-to-value (LTV, the loan as a share of the home’s value) on a cash-out. Two- to four-unit homes, second homes and investment property reach 75%. Details are subject to lender guidelines and full file review. See Lendmire’s cash-out refinance programs for how those limits play out.
What Moves Your Score, Factor by Factor?
Several small effects pull in different directions. Here is each one in plain terms.
| Factor | Direction | How long it lasts | What you control |
|---|---|---|---|
| Hard inquiry | Small dip | Fades within months | Shop in a tight window |
| New mortgage account | Small dip | Short term | Pay on time |
| Old account closed | Slight dip to account age | Temporary | Little |
| Card balances paid off | Rise | Lasts if balances stay low | How you use the cash |
| Higher total mortgage debt | Mild drag | Until you pay it down | Borrow only what you need |
| On-time payments | Gradual rise | Builds over time | Never miss one |
Each piece is modest alone. The combination is what you see on your report.
The hard inquiry
myFICO explains that checking your own score is a soft inquiry and does not hurt. A lender’s application check is a hard inquiry, and that one can set a score back temporarily. The effect is typically small, and the “new credit” category is only about 10% of an FICO score. Inquiries matter more if your file is thin or young, because fewer accounts means each change carries more weight.
The new account and the closed one
Opening a large mortgage and closing the old one can shorten your average account age. That effect is temporary.
The utilization upside
Utilization is how much of your available revolving credit you are using. Credit cards are the main example. Pay a card from $9,000 down to zero and your utilization falls sharply. That is the mechanism behind most score gains after a cash-out.
What Does the Evidence Show?
The best data we know of comes from the CFPB. Its study of cash-out borrowers, covering 2014 through 2021, found an initial sharp improvement in credit scores, followed by a gradual worsening. Scores generally stayed above pre-refinance levels.
The driver was debt paydown. Borrowers cut credit card and auto loan balances around the time of the refinance. Student loan balances did not drop. The size of the lift varied from borrower to borrower.
Here is the pattern in plain words. Scores rose most in the first quarter after closing. After about a year, many card balances had crept back toward their old levels. Scores slipped but stayed above where they began.
The same research found that more than half of cash-out borrowers named paying off bills or debts as their reason in each year from 2014 to 2019. Before refinancing, these borrowers carried card balances roughly $4,000 higher than other homeowners. That is the CFPB’s finding about the group, not a promise about your file.
Four Scenarios: Which Way Does Your Score Go?
Run the direction, not the points. Nobody can honestly predict an exact number for you.
| Scenario | Likely direction | Why |
|---|---|---|
| Pay off cards, keep them near zero | Up, and it holds | Low utilization plus on-time mortgage payments |
| Pay off cards, then run them back up | Up, then back down | Balances return, gain fades |
| Take cash for a home project, pay off nothing | Flat to slightly down | Inquiry and new debt, no paydown benefit |
| Take cash and save it | Flat to slightly down | Same as above, plus higher total debt |
The first scenario is the best case, and it takes discipline. The second matches what the CFPB saw on average. In the third and fourth, no debt moves, so the mechanism that drives the gain is missing.
What about paying off an auto loan?
Installment debt, like an auto loan, behaves differently from cards. Paying a car loan down lowers your total debt, but it usually helps the score less than clearing revolving balances. Cards are where utilization lives.
Should you close the cards afterward?
Usually not. Closing a paid-off card removes available credit, so your utilization on the remaining cards can jump. Keep the account open and the balance near zero, unless the card carries a fee or tempts you to spend.
A Timeline From Application to Month Twelve
Think of it in stages.
- Before applying: Pay cards on time and avoid new credit applications. Check your own reports, which is a soft inquiry and costs nothing.
- At application: The lender pulls your credit. Expect a small, temporary dip.
- At closing: The old mortgage closes, the new one opens, and any debts paid from the proceeds drop off your balances.
- First statement cycle: The paydown shows up as lower utilization. This is when scores often rise.
- Months three to six: On-time payments on the new loan start building history.
- Month twelve: If balances have crept back up, much of the gain is gone. If they stayed low, you keep it.
Does Rate Shopping Hurt?
Not if you do it in a tight window. For mortgage, auto and student loans, newer FICO versions count same-type hard inquiries within a 45-day window as one. Older versions use 14 days. Each lender chooses which version it uses. FICO also ignores mortgage inquiries made in the 30 days before scoring.
The safe habit: gather your quotes within about two weeks. Credit cards are not bundled this way, so do not open new ones mid-process.
When Can It Hurt?
A cash-out hurts when the loan itself goes wrong. Three situations deserve attention.
A missed payment. Payment history is the largest factor in your score. The easiest mistake to avoid is a late payment during the handoff from the old loan to the new one. Confirm when your first payment is due and set it up in advance.
Rebuilt balances. Clear your cards, run them back up, and you now owe the card debt and a bigger mortgage. Your score gives the gain back. Your equity does not.
Secured-debt risk. This one is not about the score. The CFPB cautions that paying non-mortgage debts with mortgage debt can increase the risk of foreclosure. Card debt is unsecured. Once it is folded into your mortgage, your home stands behind it.
Spreading the debt over a long mortgage term can lower your monthly outlay. It also means you may pay on that debt for many years. That tradeoff is worth weighing honestly.
Is a Limited Cash-Out Different?
Yes. A rate-and-term refinance, which the agencies call limited cash-out, pays off your existing first mortgage, closing costs and sometimes a purchase-money second lien. You get only incidental cash back. With no real cash in hand, there is no debt paydown to lift your score, so do not expect the CFPB-style gain.
On a one-unit principal residence, rate-and-term reaches 95% LTV. It reaches 97% where the existing loan is agency-owned and the first-time-buyer program allows. Mortgage insurance applies above 80%. The Fannie Mae Selling Guide requires at least one borrower on the new loan to be on title at application. It also says a home previously listed for sale must come off the market on or before disbursement. Fannie’s Eligibility Matrix sets differences by occupancy and transaction type. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
What about FHA and VA streamlines?
The FHA Streamline and VA IRRRL are for people who already hold an FHA or VA loan. Neither takes cash out. The FDIC notes that a streamline can be credit qualifying or non-credit qualifying, and lenders must verify mortgage payment history either way. Even when a streamline needs no new credit underwriting, a lender may still pull credit under its own rules. Do not assume there is no inquiry.
Before You Apply: A Credit Checklist
- Pull your own reports and fix errors first.
- Pay every account on time in the months before you apply.
- Do not open new cards or finance a car during the process.
- Bunch your mortgage quotes into a short window.
- Decide in advance which debts the proceeds will clear.
- Have a plan to keep the cleared cards near zero.
- Ask when your first payment on the new loan is due.
How Your Score Affects the Loan Itself
Your score shapes whether you qualify, and what the loan costs. Across the wholesale conventional programs we place files with, the starting decision score is 620. Many automated findings govern from there, with a total debt ratio ceiling of 50%. A wholesale lane can reach 89.99% LTV with no mortgage insurance at a 680 score on a thirty-year fixed primary residence with a conforming balance. It carries its own six months of seasoning. In Texas, a cash-out on the homestead is capped by the state constitution, and that wholesale lane is not written there. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Seasoning applies too: the mortgage being paid off must be at least 12 months old, and a borrower must have been on title for 6 months. Exceptions exist for delayed financing, inheritance and legal awards. All of this is subject to lender guidelines and full file review.
If your score is low, our piece How to Pay Off Debts on an FHA Cash-Out With a Lower Credit Score covers that path. For the floors in more detail, see Lendmire’s guide What Is The Minimum Credit Score For A Cash Out Refinance.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Hard inquiry: A credit check made when you apply for credit, which can lower your score temporarily.
Utilization: The share of your available revolving credit that you are using, mostly credit card balances.
LTV (loan-to-value): Your loan balance divided by your home’s value, shown as a percentage.
Seasoning: The waiting period a lender wants before you can refinance or cash out, such as how long you have held the loan or the title.
Limited cash-out refinance: A refinance that pays off your existing loan and costs but returns only incidental cash.
Frequently Asked Questions
Does a cash-out refinance hurt my credit?
Briefly, it can. The hard inquiry and the new account usually cause a small, temporary dip. If you then pay down cards and make on-time payments, the effect often reverses. Missed payments or rebuilt balances are what cause lasting harm.
How many points will I lose?
No honest figure exists for your file. A single inquiry typically costs a small amount, and the “new credit” slice is a minor part of the score. People with short or thin credit histories can see larger swings. Treat any exact point promise with suspicion.
Will paying off cards raise my score?
Often, yes. Lower utilization is the main reason scores rose in the CFPB’s study of cash-out borrowers. The lift holds only while the balances stay low. Paying off an installment loan usually helps less than clearing revolving cards.
Do multiple lender quotes hurt?
Not when they fall inside the rate-shopping window. Scoring models generally group same-type mortgage inquiries made within a short window, and the length of that window varies by FICO version. Keeping your quotes close together is the safest approach.
Should I close the cards afterward?
Usually not. Closing them reduces your available credit and can push utilization up on what remains. Keep them open with low balances unless a card has a fee or you cannot trust yourself with it.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. The score you carry a year after closing depends less on the loan than on what your balances do next.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. myFICO – Do Credit Inquiries Lower Your Score
2. CFPB – Cash-Out Refinance Borrowers Improve Credit Scores
3. myFICO – How Soft vs. Hard Inquiries Work
4. Fannie Mae Selling Guide B2-1.3-02
5. Fannie Mae Eligibility Matrix
6. FDIC – FHA Streamline Refinance summary
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Should You Use a Cash-Out Refinance Before Your ARM Resets? · How to Apply for a Cash-Out Refinance on a Texas Homestead · Can a Nurse With Strong Credit Get a Large Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.