How Much Does Refinancing Student Loans Impact Your Credit Score?

Photo credit: Tim Gouw

Read this if you’re thinking about refinancing your student loans but are worried about the impact that could have on your credit score.

Estimated read time ~3 minutes.

Submitting formal applications for student loan refinancing shows up on your credit score. So what? How does refinancing actually impact your credit score? Read on to find out when refinancing can negatively impact your score.

The Basics of Your Credit Score

There are six main factors that determine your credit score; your on-time payments, credit usage, total accounts, average age of credit, derogatory marks, and  credit inquiries.

Student loan refinancing applications count as credit inquiries and are factored in to your credit score and are reported for two years. What does this mean if you’re refinancing?

Where Student Loan Refinancing Comes In

Each formal student loan refinancing application will count as a credit inquiry.

Stick to rate estimators which run a soft credit check (which doesn’t affect your credit score) to shop for the lowest rates. When you’ve found the lowest rates select three or four companies to apply to and submit your applications in one batch.

Overall Impact

If you have a good-excellent credit score and use credit responsibly three or four inquiries from refinancing will have minimal impact on your credit score.

It is important to note that a rejected application for refinancing will also show up on your credit score. Plugging accurate information into the rate estimators found on refinancing company websites can help you understand if you’re qualified for refinancing.

In June I re-refinanced my student loans for a fixed rate of 3.37% through Earnest. I submitted formal applications to Earnest, CommonBond, and ElFi. My credit score has gone down by two points since then, which is an insignificant change.

If you’ve been avoiding refinancing because you’re worried it might tarnish your golden credit score, it’s time to take a closer look. The savings a low interest rate can land you are worth the minimal impact to your credit.

Have you refinanced? How did it impact your score? Let me know in the comments below or on the Repayable Facebook Page.