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Does Student Loan Refinancing Affect Your Credit Score?
Updated On October 29, 2021
Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.
Student loan refinancing is one of the best ways to save money and pay off student loan debt faster.
When you refinance your student loans, you get a lower interest rate and can simplify your monthly payment through student loan consolidation. You also can choose new student loan terms and get a new student loan servicer.
Many borrowers ask: “Does student loan refinancing affect your credit score?”
The short answer is that student loan refinancing temporarily and minimally impacts your credit score. Here’s what you need to know to refinance student loans and keep your credit score intact.
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Here are some important topics to understand about your credit score when you refinance student loans:
- Will student loan refinancing hurt my credit score?
- Will student loan refinancing help my credit score?
- Do you need a good credit score to refinance your student loans?
- Should I keep making payments while refinancing?
- What are the best ways to increase your credit score?
Will student loan refinancing hurt my credit score?
Student loan refinancing won’t really hurt your credit score.
When you choose to refinance student loans, the first step is to compare the latest student loan refinancing rates. You can check your interest rate for free with each lender with no impact to your credit score. This is only a soft credit check and takes about two minutes. Once you decide to apply for student loan refinancing, you can apply to multiple lenders to increase your chances for approval. A student loan refinancing application takes only 10-15 minutes to complete.
At this point, a lender will perform a hard credit pull, which may impact your credit score by about five points or fewer.
What is a hard credit inquiry?
A hard credit inquiry, or hard credit check, is when a lender pulls your credit report as part of the normal underwriting process. If you apply to multiple lenders within a short time frame such as one to two weeks, it may only count as one credit inquiry. A hard credit pull remains on your credit report for only up two years.
Will student loan refinancing help my credit score?
Student loan refinancing may not immediately boost your credit score, but one goal of student loan refinancing is to improve your credit score over time. Why? Student loan refinancing helps you get a lower interest rate, which can help make your student loan payments more manageable. When you have more manageable student loan payments, you can pay off your student loans faster. As you pay off debt, your credit score may improve over time.
Do you need a good credit score to refinance your student loans?
The minimum credit score to refinance student loans is 650. Most lenders prefer an even higher credit score to ensure that you are a responsible borrower and have a history of demonstrated financial responsibility. Why? Lenders want to ensure that you can repay your student loan on-time and in full.
Which credit score will lenders review for student loan refinancing? Lenders will evaluate your FICO score, which ranges from 300-850. The lowest credit score is 300 and the highest credit score is 850. FICO is the standard credit score that is used for all types of consumer loans, including mortgages, personal loans, auto loans and student loans.
What credit score is considered good credit?
There are five categories in the FICO credit rating scale; the higher your credit score, the better:
- Exceptional: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
How is my FICO score calculated?
You may wonder: “How is my FICO score calculated?” Your credit score is determined by five main components:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
Therefore, 65% of your credit score – or nearly two-thirds – is based on your ability to make full, on-time payments and manage your student loan debt balance. If you can do those things well, you may be able to increase your credit score. A higher credit score means you may qualify for lower interest rates for student loans, which can save you money. A lower interest rate can help make student loan payments more manageable, which can improve your payment history.
Should I keep making payments while refinancing?
Make sure you keep making student loan payments while refinancing. Simply applying for student loan refinancing, or waiting for your application be processed, does not mean you should stop making payments on your old student loans. If you applied for student loan refinancing, you’re still responsible to pay your old student loans until your new student loan is funded. If you miss a payment, your credit score could be hurt.
Once your new student loan is funded, keep making payments on your new student loans. Missed or late payments can impact your credit score, so make sure to stay focused on developing a positive payment history. If you make any over payments on your old student loans while you’re waiting for your new one, your old lender will refund you the difference.
What are the best ways to increase your credit score?
What is the best way to increase your credit score? There are several ways to increase your credit score and maximize your changes to get approved for student loan refinancing and get a lower interest rate. Here are a few helpful strategies:
- Make on-time payments.
- Don’t skip payments.
- Use auto-pay.
- Pay off your principal balances, not only interest.
- Contact your lenders in advance if you think you’ll have a financial problem.
- Minimize your revolving credit balance such as a credit card.
- Don’t close multiple credit cards at once.
- Don’t open multiple credit cards at once.
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