A cash-out refinance often lifts credit scores soon after closing, then the lift fades. That is the central finding of a CFPB study of borrowers who refinanced between 2014 and 2021. The report PDF is dated January 2025. The same research flags the catch: debt that was unsecured becomes debt tied to the house.
What a cash-out refinance does to your mortgage and your debt
A cash-out refinance replaces your existing first mortgage with a new, larger loan. The difference between the old balance and the new one is paid to you in cash. Say you owe $200,000 and refinance into a $240,000 loan. You walk away with about $40,000, before any closing costs, and your mortgage balance is $40,000 higher. The numbers are only an illustration, but the arithmetic works the same way for everyone.
The CFPB's Office of Research has noted that cash-out refinances became more common than rate-and-term refinances after interest rates rose rapidly in 2022. Borrowers often use the cash to pay down credit card and auto loan debt.
That changes what kind of debt you hold. Card balances moved into a mortgage become obligations secured by your home. The CFPB noted that paying non-mortgage debts with mortgage debt can increase the risk of foreclosure. The debt may feel smaller each month. The stakes are higher.
There are other ways to tap equity. Home equity loans and home equity lines of credit leave the original first mortgage in place. That can matter if your current mortgage rate is low, since a refinance replaces the terms on the whole balance.
What the CFPB found about credit scores after a cash-out refinance
The CFPB looked at borrowers who refinanced between 2014 and 2021. It tracked how they paid down credit card and other debt, and how card utilization and scores moved before and after. In its summary of the report, the bureau described an initial sharp improvement in credit scores after the refinance.
The improvement did not last. The CFPB reported a gradual worsening afterward. Scores generally stayed above where they were before the refinance, but the early peak was the high point.
The full research report on paydown behavior covers how card utilization and non-mortgage balances changed around the refinance. We did not have its detailed score figures or paydown rates in hand, so you will not find them here. Read the report for exact numbers. Keep in mind that aggregate results describe groups of borrowers, not any one person. Your own score will depend on what happens to your balances after closing.
Why paying off other debts matters for your credit picture
Debt payoff is the most common reason borrowers give. In the National Survey of Mortgage Originations, as cited by the CFPB, more than 50% of cash-out borrowers from 2014 to 2019 said paying off other bills or debts was their reason. For 2020 and 2021 the share was more than 40%. Home repairs or new construction ranked second.
A likely driver of the early score jump is credit utilization, the share of your available revolving credit that you are using. Experian's consumer guidance describes utilization as part of how credit is calculated. Clear a card and utilization falls. The CFPB study examined this pattern in its borrowers, though the material we reviewed does not spell out the exact mechanism behind the score changes.
Other effects are possible. A new loan means a new account, and lenders typically check credit when you apply. We found no figures on how inquiries or a younger average account age play into the results, so treat those as open questions rather than known costs.
Questions to ask before deciding
The first risk is the rebuild. If the cards are paid to zero and spending resumes, you carry a bigger mortgage and new card balances. The CFPB's paydown research asks whether borrowers keep those balances down after the refinance. Ask yourself the same thing before you sign.
The second risk is the fading score. A bump that shrinks over time is a poor reason to refinance by itself. Debt payoff and cash needs should drive the choice, with the score as a side effect.
- Will I keep the paid-off balances at or near zero?
- Would a home equity loan or line leave my current mortgage rate alone?
- What are the closing costs, and how long until I recover them?
What the sources leave out
The research we drew on does not cover closing costs, rate differences against an existing mortgage, tax treatment, or the credit score a lender will require. It also does not lay out current consumer protections specific to cash-out refinancing. Get costs and terms in writing from lenders and compare them side by side with a home equity loan or line.
If you are unsure, a HUD-approved housing counselor is a reasonable person to talk to before you put your home behind a larger loan. Check the counselor's credentials first. The honest summary is short: scores tend to rise early and slip later, and the debt you moved is now secured by your house.
Please seek a professional. This article is general information, not financial, tax or insurance advice. Please seek a licensed financial, tax or insurance professional about your own situation.
