I am trying to reduce some of my debt and increase my credit score so that I can buy a house. I have about $10,000 left to pay on my car loan and about $11,000 left to pay on my student loan. I keep a very small credit card balance (0%-5%) but my credit limit is only $4,000. My last loan was about 18 months ago (when I bought my first car) and I was given a high interest rate because my credit was "young." I was considering refinancing my car loan so I could have a lower rate and pay it off faster, but I also want to buy a house in a year. Will refinancing my car now hurt my credit score and affect my buying a house within a year?
There are a number of variables that are taken into account in determining a credit score. There are also several different credit scoring models, each of which is zealously guarded by the company that owns it, so whether and how a refinancing of your car loan would affect your score is difficult to say.
If the refinancing lowers your rate on the car loan and shortens the time to payoff, it could make you more attractive as a credit risk. If there's no shortening of the term of the loan, but payments are lowered, that could also be a favorable variable for your score. On the other hand, if you lengthen the remaining term to lower payments even more, that could have a negative effect on your score because you'd have the obligation longer.
It would be helpful for you to know what your credit record holds before applying for a mortgage. You can find out about your credit record, free of charge, at http://www.annualcreditreport.com
You can also purchase a credit report with a credit score from any or all of the three major credit reporting agencies (credit bureaus). You will find links to those companies on the annualcreditreport.com website.
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There are a number of variables that are taken into account in determining a credit score. There are also several different credit scoring models, each of which is zealously guarded by the company that owns it, so whether and how a refinancing of your car loan would affect your score is difficult to say.