Will Refinancing Student Loans Affect Your Credit Score?

Written By Mary Beth Eastman
Last updated December 8, 2020

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August 21, 2019

Simple. Thrifty. Living.

When interest rates are available at lower rates than you’re paying on your current student loans, it’s tempting to go the refinancing route. But it’s also likely to impact your credit score. So, it’s important to know the effects of making this financial decision. Here’s how refinancing your student loans impact your credit score.

Refinancing your student loans doesn’t typically hurt your credit score, but it can decrease it, since you are permitting a hard inquiry. By submitting multiple refinancing applications, your credit report receives multiple inquiries. That means your credit score can take a hit. This can lower your score anywhere from a few points to  five points or more, in some cases. Moreover, hard inquiries take two years to “drop off,” or be removed from your credit report. So, keep your applications to a minimum and shop around first before submitting your refinancing application.

The great part about refinancing your student loans is that it gives you the chance to lower the interest you pay on your loan. That means you are better able to afford your monthly payments, which encourages on-time payments. This gives you the opportunity to improve your credit score.

But if you plan to refinance your loan, ensure you continue paying on time. Even if you believe you will qualify for a new interest rate that lowers your existing interest rate, missing payments can lower your credit score. The process for refinancing your loan can take 30 or more days before your new loan rates are approved. So, you’re still responsible for your current student loan bills.

Unlike credit card debt, lenders typically don’t consider student loan debt “bad debt,” and paying on time can work in your favor. That’s because making on-time payments typically increases your credit score over time. But if you are unable to make a payment, it’s important to contact your student loan service provider. Missed payments are typically reported after 30 days. So, if you contact your loan provider before you know you may miss a payment or even right after, you may have a chance for other options to make your payment, such as getting a temporary administrative forbearance.

Refinancing your student loans is a great opportunity for taking advantage of lower interest rates. But it’s important to know the impacts of making this financial move. Even if your credit score may slightly decrease initially, you may still benefit from an increase of an approved credit score if you are able to pay on time.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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