The Quick Read: Yes, it can, but the effect is usually small and temporary. The credit check and the new account may cause a short dip. Over the longer run, your score depends on two things: what you do with the cash and whether you pay the new loan on time. Paying off high-balance cards can even help. Running those cards back up can undo it.
What Actually Changes on Your Credit Report
A conventional cash-out refinance touches your credit in several small ways, and they pull in different directions. Some push the score down briefly. One can push it up. The one that matters most over time is payment history.
| Factor | What changes | Typical direction |
|---|---|---|
| Hard inquiry | Lender pulls your credit | Small dip, fades |
| New account | New mortgage opens | Can lower average account age |
| Old account | Old mortgage reports closed and paid | Modest effect, varies by file |
| Card balances | Paid down with proceeds | Often a lift |
| Payment history | On-time payments on the new loan | Long-run driver |
| Other new credit | Cards or auto loans opened mid-process | Extra dips |
Nobody publishes a clean point-drop figure for this transaction, and anyone quoting an exact number is guessing. Scoring models weigh each file differently. A borrower with a long history and low balances will see something different from one with a thin file and maxed-out cards.
Here is the practical read. A score that was healthy going in usually stays healthy. A score that was borderline is the one to protect, because small moves matter more near a pricing or eligibility line.
Why the Hard Inquiry Matters Less Than Borrowers Fear
The inquiry is the first thing most people worry about, and it is the smallest piece. FICO’s own education page says inquiries are only about 10% of what makes up an FICO Score. Payment history and overall debt burden carry far more weight. An inquiry stays on the report for up to two years, but it only affects FICO Scores for a year.
Shopping lenders is also less costly than it sounds. Scoring models generally group mortgage credit checks made close together into a single inquiry. On newer models that window is 45 days. On older versions it can be as short as 14 days. Keep your shopping tight and you are treated as one shopper, not many.
There is a catch. Shopping for a mortgage and a car loan in the same stretch does not group together. Those are different loan types.
The Part Most Articles Skip: The New Account and the Old One
Closing your old mortgage and opening a new one can lower the average age of your accounts. That may shave a little off the score. The effect is generally modest, and it depends on how many other accounts you hold and how old they are. A borrower with a twenty-year mix of cards and loans barely notices it. A borrower whose mortgage is the oldest account on the file may notice more.
The larger swing comes after closing. It follows what happens to your card balances in the months afterward, which is why the research below on card paydown and balance drift matters more than the account change itself.
What Research on Cash-Out Borrowers Found
The Consumer Financial Protection Bureau studied cash-out borrowers over a multi-year period running from 2014 to 2021. The agency reported an initial sharp improvement in credit scores, followed by a gradual worsening. Scores generally stayed above pre-refinance levels. Borrowers often used the cash to pay down other debts, particularly credit card and auto loan debt.
Two lessons come out of that finding.
- Paying off cards with the proceeds can lower revolving utilization, which tends to raise scores.
- The gain does not last by itself. The same research found card balances trended back toward pre-refinance levels over the following year.
The agency also cautions that paying non-mortgage debts with mortgage debt can raise the risk of foreclosure. Credit card debt is unsecured. Once it is rolled into a mortgage, it is secured by your home. A better score does not change that tradeoff.
When a Cash-Out Refinance Can Help Your Score
It can help when the proceeds clear revolving balances and the borrower stops using them. Picture a homeowner carrying card balances near their limits. Utilization is high, and it is dragging the score. A cash-out refinance pays those cards off. Utilization drops sharply, and the score often rises within a reporting cycle or two.
The result holds if three things hold.
1. The cards stay low or at zero.
2. Every payment on the new mortgage arrives on time.
3. The larger mortgage balance fits the monthly budget comfortably.
If the cards are cleared and the home equity is working as a one-time reset, the credit file can end up stronger. That is the best case. It is not the typical case for everyone.
When It Can Hurt
It hurts when the same cards fill back up. Take a homeowner who clears every card and then keeps spending at the old pace. A year later, the mortgage is larger, the cards are full again, and the score has slipped below where it started. That borrower carries more total debt, and more of it is secured by the home.
It also hurts in three quieter situations.
- Missed payments during the transition. Keep paying the old mortgage until the payoff is confirmed. This is practical advice, not an agency rule, but a late payment does far more damage than any inquiry.
- New credit applied for mid-process. The CFPB says applying for a card or car loan creates another inquiry that can lower scores. Hold off on new accounts until the loan closes.
- A borderline score. If you sit right at an eligibility or pricing line, a small dip can change what is offered. In that case, waiting a few months to build the score back up may be the better move.
How Credit Shapes a Conventional Cash-Out Refinance
Credit works in two places on a cash-out refinance. It decides whether you qualify, and it influences how the loan is priced.
On the wholesale conventional programs Lendmire works with, the starting point is a 620 decision score. The automated underwriting finding governs most files. The total debt-to-income ceiling is 50%. Manually underwritten loans use tighter limits, 36% or 45%, with reserve and score factors drawn from the agency Eligibility Matrix. The Eligibility Matrix also states that minimum reserves apply on cash-out files run through automated underwriting when debt-to-income exceeds 45%. These parameters are subject to lender guidelines and full file review, and nothing here is a commitment to lend. For a closer look at score thresholds, see Lendmire’s piece What Is The Minimum Credit Score For A Cash Out Refinance.
Higher scores and lower leverage generally reward the borrower with better pricing terms. Some lenders set a higher floor than the wholesale starting point, so the number you see at one lender may differ from another.
Leverage is the other limit. On a one-unit principal residence, a conventional cash-out refinance is capped at 80% of the appraised value. On two- to four-unit principal residences, second homes and investment property, the cap is 75%. Occupancy decides the leverage, so a second home sits in a different lane than the house you live in.
One wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score and a 50% ratio on a thirty-year fixed loan, on a 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.
You can explore the structure of these loans on Lendmire’s cash-out refinance programs page.
Timeline: What Happens and When
Think of the credit effects in stages, not as one event.
1. Before applying. Check your own reports. Soft inquiries, including your own requests for your credit reports, do not affect your scores. Pay down cards if you can and avoid new credit.
2. Application and credit pull. The hard inquiry posts. If you shop several lenders in a short window, the pulls are generally treated as one.
3. Underwriting and appraisal. Your credit, ratios and reserves are reviewed. The appraised value drives the LTV cap, which decides how much cash is available. Keep other accounts quiet.
4. Closing. The old first lien is paid off. Closing costs can be paid or financed. The remaining cash goes to you.
5. Reporting. The old account shows closed and paid. The new account appears. A small dip is possible here.
6. First months afterward. Card payoffs show up as lower utilization. On-time payments start building history on the new loan.
7. The following year. The inquiry stops affecting FICO scoring at the twelve-month mark. Behavior with the cards and the new loan decides where the score settles.
These are stages and drivers, not fixed numbers. Timing varies by when each creditor reports.
Which Rules Decide Whether You Can Cash Out at All
Credit is only one gate. The Fannie Mae Selling Guide defines a cash-out refinance as a new first mortgage that pays off existing mortgages on the same property, or a new mortgage on a property with no lien. Equity can be taken out for any purpose. Closing costs, points and prepaids may be financed, and subordinate liens of any age may be paid off.
Two seasoning rules apply.
- The first mortgage being paid off must be at least 12 months old, measured from the existing note date to the new note date.
- At least one borrower must have been on title for six months, with exceptions.
The earlier version of the same Guide section lists the main exceptions. There is no waiting period if you inherited the property or were legally awarded it in a divorce, separation or dissolution of a domestic partnership. A narrow delayed-financing exception also exists for buyers who paid cash and refinance within six months. The original purchase must be documented as arm’s-length with no mortgage used, and cash-out pricing applies. Confirm current details with your loan officer, since guides are updated.
One more note on credit. The agencies allow a student loan cash-out refinance that pays off student debt through the new loan. This moves debt off your credit file, which makes it relevant to the credit angle. Eligibility depends on meeting the program requirements.
How to Protect Your Score
A short checklist covers most of it.
Before you apply
- Pull your own reports and fix errors.
- Pay down card balances where you can.
- Hold off on new cards, car loans and large purchases.
During the process
- Keep all lender pulls inside one shopping window.
- Do not close old cards. Closing them can shrink available credit and raise utilization.
- Keep paying the current mortgage on time until payoff is confirmed.
After closing
- Leave the paid-off cards open and unused, or lightly used and paid in full.
- Set up autopay on the new mortgage.
- Check your report after a cycle or two to confirm the old loan shows paid and the new one is reporting.
Your score in a consumer app may not match what the lender sees. Mortgage lenders often use different scoring versions than the ones consumers get for free. Do not panic over a gap between the two.
Cash-Out Versus the Alternatives, Credit-Wise
A cash-out refinance replaces your first mortgage. A home equity loan or line of credit leaves it in place. That difference changes what shows up on the credit file.
| Option | First mortgage | Credit file effect |
|---|---|---|
| Cash-out refinance | Replaced | New account, old one closes |
| Home equity loan | Stays | New second-lien account added |
| HELOC | Stays | New revolving line added |
| Rate-and-term refinance | Replaced | Similar to cash-out, little cash back |
None of these is free of credit effects, and each adds an inquiry. The right fit depends on whether you want to keep your current first mortgage, how much equity you need, and what you plan to do with it. A conventional cash-out refinance makes the most sense when the new loan on the whole balance still works for you. If you are leaving an FHA loan, Lendmire’s article Does an FHA-to-Conventional Cash-Out Refinance Need Better Credit? covers that path.
Key Terms Defined
Hard inquiry: A credit check made when you apply for credit, which can cause a small, temporary score dip.
Utilization: The share of your available credit card limits that you are using.
Seasoning: The minimum time a loan or ownership must be in place before a new cash-out loan is allowed.
LTV (loan-to-value): The loan amount as a percentage of the home’s appraised value.
Delayed financing: A narrow exception that lets a cash buyer refinance soon after purchase.
Debt-to-income ratio: Your monthly debt payments as a share of your gross monthly income.
Frequently Asked Questions
Does a cash-out refinance hurt your credit?
It can, briefly. The hard inquiry and the new account may cause a small dip, and the old mortgage closing can lower average account age. Over time, on-time payments and lower card balances can offset that. Missed payments do the real damage.
How long does the dip last?
Often a few months, but it varies by file. The inquiry affects FICO scoring for about a year and stays on the report up to two years. Most of the movement comes from the account changes and your payment behavior afterward.
Can a cash-out refinance raise your score?
Yes, if the cash pays off high-balance cards and they stay low. The CFPB found cash-out borrowers had an initial sharp improvement in scores. The same research found gradual worsening afterward, as card balances drifted back up.
Does shopping lenders hurt more?
Not much, if you keep it tight. Mortgage inquiries made within a short window are generally treated as one, though the length of that window depends on which scoring model is used. Shopping for different loan types does not group together.
Should I wait if my score is borderline?
It may be worth it. If you are near an eligibility or pricing line, a few months of lower balances and clean payments can change the outcome. If you need the cash now, ask your loan officer how your score sits against the program minimums before you apply.
If Cash-Out Is on the Table
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. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit. Whatever you choose, the score you carry a year from now will be set less by the closing and more by the habits that follow it.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see conventional loan programs.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. myFICO – Does checking your credit score lower it?
2. CFPB – Cash-out refinance borrowers and credit scores
3. CFPB – What happens when a mortgage lender checks my credit?
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Is a Conventional Cash-Out Refinance Worth It for Your Home? · Do You Qualify for a Conventional Cash-Out Refinance? · Conventional Cash-Out Refinance for Homeowners Who Qualify
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.