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Will Consolidating My Student Loans Hurt My Credit Score
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Hanneh Bareham specializes in all things related to student loans and helping you finance your next educational endeavor. Others want to help them attend college and…
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Will Refinancing Student Loans Hurt Your Credit Score?
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Refinancing student loans is a smart move for many borrowers, especially those who have improved their credit scores after taking out their loans. By getting the best rate, you can save hundreds or even thousands of dollars in interest over time.
Aside from temporarily suspending a few points when you apply for a refinance, it shouldn’t hurt your credit score. In fact, refinancing can improve your score by helping you stay current with your payments.
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Applying for a student loan refinance can lower your score by a few points, but it can be a smart move for your credit.
There are some situations where refinancing can hurt your credit score. However, in most cases, the effect is temporary and relatively small.
For example, refinancing requires a strict credit check, which can drop several points from your credit score. If you apply to multiple lenders over a long period of time — say, two months — you may end up with multiple inquiries that affect your score.
Plus, when you refinance, you’re replacing your old loan account with a new one. This lowers the average age of your accounts, which can have a minor negative impact. This means that the length of your credit history accounts for only 15 percent of your FICO credit score.
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The biggest influence on your credit score is your payment history. If you’re too ambitious with your monthly payment when you refinance and miss a payment, your credit score could drop significantly. That’s because your payment history makes up 35 percent of your FICO score.
If you manage your money properly, refinancing can improve your credit. This is especially true if refinancing helps you make your monthly payments.
Paying off your debts on time proves that you are a responsible borrower, and on-time payments translate into a higher credit score. If you’ve struggled to make your payments in the past, refinancing is a great way to lower your monthly payments and never miss a payment.
Set reminders on your phone or calendar to pay. If you want to simplify the process, you can automate your student loan payments. Some lenders even offer a discount for car payments.
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If you’re concerned about your credit score, there are a few steps you can take to mitigate the potential impact of refinancing:
While student loan refinancing is a strategic move to save on interest and get out of debt, it’s not for everyone. If you can’t get into a lower interest rate, refinancing doesn’t make much sense.
Additionally, if you refinance federal student loans, you may be able to access certain benefits, including student loan forgiveness, loan repayment assistance programs, income repayment plans, and more.
If you’re considering refinancing or other ways to pay off your student loans more efficiently, explore all of your options to determine what works best for you.
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Hanneh Bareham specializes in all things related to student loans and helping you finance your next educational endeavor. They help others achieve their college and financial goals by making student loans easy to understand. Our goal is to give you the tools and confidence you need to improve your finances. Although we always receive compensation from partner lenders we recognize, all opinions are our own. By refinancing your mortgage, the total financing fees over the term of the loan may be higher.
Average student loan payments are $393. Since it is so high, you may struggle to get your daily necessities. There are several different ways to lower your student loan payments to make room for yourself in your budget.
If you have federal student loans and need lower payments and are willing to pay them off over a longer repayment period, an extended payment plan may be right for you. Under this method, your repayment term can be as long as 25 years, which dramatically lowers your monthly payment. To qualify, you must have at least $30,000 in direct or FFEL federal loans.
Because of the long repayment period, you may end up paying thousands of percent more than you originally owed. However, there may be trade-offs
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