What Should My Credit Score Be to Refinance?

When consumers refinance a loan, typically either a mortgage or a car loan, they use a new loan to pay off the old one. They do this because the new loan offers better interest rates and, in turn, lower monthly payments than their old loan. When applying for a refinancing loan, you need to make sure your credit score is as good as it can be or you may not be able to get approved.

FICO Score

While each creditor has its own process for determining who is eligible to receive a loan, most lenders use the FICO score as a part of their evaluation process. Your FICO score is a score between 300 and 850. The higher the score, the better your chances of getting a loan. Also with a higher score, you're more likely to get the best interest rates, increasing the money-saving effects of the refinance loan.

High Score

Every lender determines what the ideal borrower looks like, but in general, lenders consider any borrower with a FICO score of 720 or above to have excellent credit. If your score is 720 or above, and as long as you have a steady income, you're most likely to receive the best possible interest rates on any loan you apply for. Also, a high score will let you shop around more effectively, as lenders are often eager to lend money to reliable borrowers.

Average Scores

The Federal Citizen's Information Center reports that anyone with a credit score between about 620 and 720 has average credit reliability. While creditors will not fall over themselves to offer you a loan, nor will they give you the best interest rates they can offer, you can still probably get a refinancing loan. However, you need to always evaluate if the terms of the new loan are different enough to make it worth it.

Low Scores

Creditors often refer to borrowers with a 620 or lower credit score as "subprime," meaning they represent a significant risk of defaulting on the loan. Lending Tree reports that borrowers with a credit score as low as 500 can still get a loan, though these come with stricter controls, such as proving your income by producing your W-2's and, of course, higher interest rates.