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Will Consolidating My Student Loans Hurt My Credit?


Many students are concerned whether consolidating their loans will affect their credit rating, and it does – in a positive way.

Credit agencies use several factors to determine your credit score, here are a couple that are affected by your student loans.

1. Number of open accounts: The number of creditors you have is one of the factors used – the more separate creditors you have the lower your score. Consolidation can increase your score by combining all of your separate lenders and reducing your open accounts to one.

2. Amount of monthly payments: The total amount of your minimum monthly payments is another factor in your score. Consolidating your student loans will lower your minimum monthly payment up to 60%, raising your credit score. For example, say you have three separate student loans all at the current rate of 6.8%.

1. $15000.00 minimum monthly payment $ 172.62

2. $20500.00 ” ” $ 235.91

3. $ 7500.00 ” ” $ 86.31

$43000.00 ” ” $ 494.84


One Consolidated $43000.00 loan monthly payment $ 300.49

Monthly savings of $ 194.35 or 40%.

Lower payment = less monthly commitment = higher credit score.

3. Debt to credit ratio: The amount of available credit you have on any given credit line will also affect your score. A credit card with a $5000.00 limit that has $5000.00 in charges on it will give you a lower score than a credit card with a $10,000.00 limit that has $5000.00 in charges on it. Student loans are considered maxed out credit lines until you have made some payments so reducing the number of maxed out accounts will raise your credit score.

READ:   Consolidating Your Government Student Loans

If you also have private (non-federal) student loans you are probably already aware that they should be consolidated separately but you may not be aware that your federal loans should be consolidated first. Since private loans interest rates are based on your credit rating consolidating your federal loans first and raising your credit score can help you get a better rate on your private loan consolidation. Generally when you take private loans out you are a young student with not much of a credit history and you aren’t always given the best rates. This makes the consolidation process that much more important. With proper timing federal and private student loan consolidations can save you money, raise your credit score, and reduce the amount of time it takes to repay your loans. It’s a winning situation all around!

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