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Does Refinancing Student Loans Hurt Your Credit?

Does Refinancing Student Loans Hurt Your Credit?
Nancy Bilyeau

Nancy Bilyeau

Updated March 28, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Most people want to refinance their student loan to help their financial situation. So the possibility of hurting your credit by going through the process of refinancing is alarming.Fortunately, any harm done to your credit in applying should be pretty minor–and temporary. It’s just a part of going through obtaining a loan.As for whether student loan refinancing will inflict any other kinds of damage to your credit, it definitely shouldn’t. To make sure your credit score is safe, learn more about how refinancing works and how you can best protect yourself.

Credit Score: Why Is It Important? 

A credit score is the number assigned to you by any of the credit rating agencies. Those agencies include Experian, TransUnion, and Equifax.Whenever someone looks at your score–a lender considering whether to give you a loan, a landlord deciding if you’d make a good tenant–they’ll see a number that tells them how good a risk you are. Credit scores are like a snapshot of your financial health.If you have a good credit score, you’re going to get more green lights to what you want: a loan with low interest, an affordable car insurance policy, a high-limit credit card. On the flip side, if your score isn’t good, you’re going to be turned down for loans, lose out on homes and cars, and only be able to get high–interest credit cards.Judgements vary, but anything 700 or above is considered a strong score. Your credit score is influenced by:
  • On-time payments for bills
  • Steady (but not excessive) use of credit
  • History of paying balances in full

What is Student Loan Refinancing?

It’s all about choices in paying off student loans.With student loan refinancing, you take your existing loan, one you’ve been paying down, and approach a private lender to ask for a new student loan. The goal is to get a better deal: lock into savings-producing lower interest rates, sign up with more favorable terms. The lender–a bank or other financial institution–basically buys the old loan and issues a new one with you.Student loan debt has reached staggering amounts in the U.S. Generally, people refinance a federal student loan issued while they were in college and take out a private loan with lower interest. It should be noted that with student loan refinancing, if you do so, you lose the protections of federal loan forgiveness and cancellation programs.

Refinancing Student Loans and Your Credit

So to dig deeper into the question “Does refinancing student loans hurt your credit?” we’ll  scrutinize the loan application process. The bank, credit union, or online lender you’ve gone to will perform what is known as a “hard credit check” when you apply for a loan. The intent is to see your number and the history behind the number.Why does a hard credit check affect your number? After all, you didn’t do anything “wrong.” One explanation is that a hard inquiry means a lender is assessing your credit report and that creates uncertainty. You may be trying to get a personal loan, a student loan, or a mortgage. Something could be about to happen that could shake up your financial “health.”Sometimes this hard check doesn’t do anything to your credit. But other times the check will lower your credit score. How much? Occasionally as much as 10 points. More often 5 points or less. And fairly soon your score will return to where it was before the hard check.The problem is if you submit multiple full applications for loans over the course of several months, your credit score could take a bigger hit. The reason is this suggests more volatility. So if you put through these full applications over a long stretch of time, then the question of “Does refinancing student loans hurt credit?” carries the answer “Yes.”There are proactive steps you can take to make sure your credit score makes it through the process in good shape.

Limiting Application to a 14-30 Day Window

You can pre-qualify for a loan offer and it won’t affect your score. Take advantage of that when you decide who you want to put in an application with. A full application is the only type that will nudge down your credit score. So try to submit to the lenders you consider your best options.Also, and this is key, try to apply with your chosen few lenders for a student loan within the same month. That keeps the damage to your credit score to a minimum.Note: Your FICO score won’t be significantly hurt by multiple inquiries if they occur within a 30-day window. Your Vantage credit score may have a shorter window of 14 days.

Continuing to Make Payments on Student Loan Before Refinancing is Complete

When you’re trying to refinance, your money moves are under a spotlight. You need to be meticulous about continuing to make payments on your loan throughout the process. If you are late with a payment now, your credit score might suffer just when you want it to be perfect.Keep on top of the payments for your original student loan until you are totally sure that the refinancing process is complete.

Staying Current on Refinance Payments

When you analyze the question of whether refinancing student loans hurts your credit, you need to acknowledge the importance of making payments on time.Yes, the application process could be finished, but any late payments will be reported to the credit agencies and lower your score. When choosing the terms of the loan–which is how long you will need to pay it off–make sure the repayment isn’t going to be too hard for you to cover. When refinancing, some people choose a shorter loan term and higher payments to get their loan over with. But the most important thing is making payments on time. Then refinancing is unlikely to hurt your credit.Be sure to weigh this priority when you study the pros and cons of refinancing student loans.

The Takeaway 

How will refinancing affect credit score? When you refinance your student loan, the private lender will do a hard check of your credit, which could cause a dip in your rating for a short time. If you apply to as few lenders as possible and keep it within a short time frame, that will minimize the chance of any credit damage. And be diligent in timely loan payments.Curious about refinancing a student loan? Check out the options offered by Lantern by SoFi.You can get an idea of those options if you compare rates on refinancing student loans through Lantern by SoFi.
Photo credit: iStock/PeopleImagesThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)LCSL0322004

Frequently Asked Questions

Does refinancing hurt your credit score?
Is refinancing a student loan smart?
Will consolidating my student loans lower my credit score?

About the Author

Nancy Bilyeau

Nancy Bilyeau

Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.
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