Refinancing your mortgage has long been seen as a way to improve credit scores and increase home equity. This is especially true if you are using the money from refinancing to pay off debt or invest in higher-value assets, like stocks. However, there’s a lot of talk about how this practice can hurt your score during the short term and actually lead to some negative consequences over time – including skyrocketing interest rates
If you’re wondering how much your credit score will drop when you refinance your car, the answer is that it depends. The amount of damage to your credit score depends on factors such as the length of time you’ve been using a credit card and what type of loan you’re taking out.
The majority of individuals want to refinance their student loans in order to improve their financial status. As a result, the prospect of your credit being harmed as a result of the refinancing procedure is concerning.
Fortunately, any damage to your credit as a result of applying should be minor–and only temporary. It’s all part of the process of getting a loan.
Whether you’re wondering if refinancing your student loans would harm your credit in any way, the answer is no. Learn more about how refinancing works and how you can best protect yourself to keep your credit score protected.
Refinancing student loans: Advantages and Disadvantages
DepositPhotos.com is the source of this image.
What Is the Importance of a Credit Score?
A credit score is a number that any of the credit rating organizations assigns to you. Experian, TransUnion, and Equifax are among these companies.
When a lender considers whether or not to issue you a loan, or a landlord considers whether or not you’d make a good renter, they’ll see a number that shows them how good a risk you are. Credit scores provide as a glimpse of your financial well-being.
If you have a strong credit score, you’ll be able to receive more of what you want, such as a low-interest loan, low-cost vehicle insurance, and a high-limit credit card. On the other hand, if your credit score isn’t acceptable, you’ll be denied loans, miss out on houses and automobiles, and be limited to high–interest credit cards.
Although opinions differ, anything 700 or above is considered a good score. The following factors have an impact on your credit score:
- Payment of invoices on time
- Credit use that is consistent (but not excessive)
- In the past, I’ve always paid off my debts in full.
DepositPhotos.com is the source of this image.
What is Student Loan Refinancing and How Does It Work?
It’s all about making decisions when it comes to repaying student debt. When you refinance a student loan, you take your old loan, which you’ve been paying down, and contact a private lender to request a new loan. The idea is to secure a better deal: lock in lower interest rates that provide savings, and sign up with more favorable conditions. The lender, which might be a bank or another financial organization, simply buys the previous loan and replaces it with a new one with you.
In the United States, student loan debt has reached catastrophic levels.
In most cases, consumers refinance a federal student loan taken out while in college and replace it with a private loan with a reduced interest rate. It’s worth noting that if you refinance your student loans, you’ll forfeit the benefits of government debt forgiveness and cancellation programs.
Damir Khabirov / istockphoto contributed to this image.
Student Loan Refinancing and Your Credit
So, in order to have a better understanding of the subject “Does refinancing student loans affect your credit?” we’ll look at the loan application procedure. When you apply for a loan from a bank, credit union, or internet lender, you will be subjected to a “hard credit check.” The goal is to view your phone number and the history behind it.
What effect does a rigorous credit check have on your credit score? You didn’t do anything “wrong,” after all. A hard inquiry, according to one theory, signifies that a lender is evaluating your credit record, which generates uncertainty. You might be looking for a personal loan, a student loan, or a home loan. Something might be about to happen that will cause your financial “health” to be thrown off.
simonapilolla / istockphoto is the source of this image.
Credit Checks (Hard)
This hard check may or may not have any effect on your credit. In certain cases, though, the check may reduce your credit score. How much is it? Occasionally, up to ten points. It’s more than likely that you’ll get 5 points or fewer. And your score will quickly revert to where it was before to the harsh check.
The difficulty is that if you apply for many loans in full over a period of months, your credit score may suffer further damage. The rationale for this is because it implies that there will be increased volatility. So, if you fill out all of these forms over a lengthy period of time, the answer to the question “Does refinancing student loans affect credit?” is “Yes.”
There are proactive steps you can take to make sure your credit score makes it through the process in good shape.
Wavebreakmedia is the source of this image.
Limiting the application period to 14-30 days
You may pre-qualify for a loan without affecting your credit score. Use this to your advantage when deciding who to submit an application to. The only form of application that can lower your credit score is a comprehensive application. As a result, strive to submit to the lenders that you believe are the ideal fit for you.
Also, and this is crucial, attempt to apply for a student loan with your preferred few lenders during the same month. As a result, the harm to your credit score is kept to a minimal.
Multiple queries during a 30-day period will not have a substantial impact on your FICO score. The timeframe for your Vantage credit score might be as brief as 14 days.
Anhelina Pikas / iStock / Anhelina Pikas / iStock / Anhelina Pikas / iS
Making Student Loan Payments While Refinancing Is Still In Progress
When you’re attempting to refinance, your financial transactions are scrutinized. Throughout the procedure, you must be careful about making payments on your loan. If you miss a payment right now, your credit score may suffer exactly when you need it the most.
Maintain your original student loan payments until you are certain that the refinancing procedure is complete.
DepositPhotos.com is the source of this image.
Keeping Up with Refinance Payments
When determining whether refinancing student loans may harm your credit, you must consider the necessity of making timely payments.
Yes, the application procedure may be complete, but any missed payments will be recorded to credit bureaus, lowering your credit score. When deciding on the loan’s conditions, or how long you’ll have to pay it back, be sure the payback won’t be too difficult for you to afford. To get their debt over with, some consumers pick a shorter loan term and greater payments when refinancing. The most essential thing, though, is to pay on time. Then refinancing is unlikely to have a negative impact on your credit.
When weighing the benefits and drawbacks of refinancing student loans, keep this in mind.
Image credit: iStock/ tommaso79
The Remainder
What effect would refinancing have on your credit score? When you refinance your student loan, the private lender may do a rigorous credit check, which may result in a temporary drop in your credit score. Applying to as few lenders as feasible and doing so in a short period of time will reduce the risk of credit harm. Also, be sure to pay your loans on schedule.
More information is available at:
MediaFeed.org syndicated this story, which first published on LanternCredit.com.
The 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)
SoFi’s Lantern:
SoFi Lending Corp., a lender regulated by the California Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636, owns the Lantern website. (www.nmlsconsumeraccess.org)
All prices, fees, and conditions are provided “as is” and are subject to change at the discretion of each supplier. There is no assurance that you will be accepted or that you will be eligible for the stated rates, fees, or terms. The particular terms you’ll get are determined by criteria such as the perks you’ve requested, your credit score, use, and history, among others.
*Check your rate: Lantern and/or its network lenders do a soft credit pull to see what rates and conditions you qualify for. This does not effect your credit score. If you pick a product and proceed with your application, the lender(s) you choose will request your complete credit report from one or more consumer reporting agencies, which is referred to as a hard credit pull and may have an impact on your credit.
All loan conditions on this page, including interest rate, Annual Percentage Rate (APR), and monthly payments, are from lenders and are estimations based on the minimal information you supplied. They are offered for informational reasons only. As required by the Truth in Lending Act, the estimated APR includes all applicable costs. The conditions of your loan, including the APR, will be determined by the lender you choose, their underwriting requirements, and your particular financial circumstances. The lenders, not SoFi Lending Corp. or Lantern, supply the loan terms and rates shown. For further information, please read the terms and conditions of each lender.
Your credit ratings and the interest rates you may be offered are influenced by a variety of variables. SoFi does not qualify as a credit repair organization under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services, nor does it offer advise or help with “rebuilding” or “enhancing” your credit record, credit history, or credit rating. See the FTC’s credit page for more information.
Financial Tips & Strategies: The 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.
Loans for individuals:
This Personal Loan product is operated by SoFi Lending Corp. (“SoFi”) in collaboration with Even Financial Corp. (“Even”). Whether you make a loan enquiry, SoFi will send your information to Even, which will then send it to its network of lenders/partners to see if you qualify for pre-qualified or pre-approved offers. Your credit information will be obtained from a credit reporting agency by the lenders/partners that get your information. Pre-qualified and pre-approved offers from one or more lenders/partners will be given to you here on the Lantern website if you fulfill one or more lender’s and/or partner’s eligibility requirements. On our Personal Loans website and our Student Loan Refinance page, you’ll find more information about Even, the process, and its lenders/partners, as well as a loan enquiry form. Learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy by clicking the links below.
The APR on personal loans offered to Lantern consumers does not exceed 35.99 percent. In the case of a $10,000 personal loan with a 36-month duration and a 10% interest rate, the total amount paid would be $11,616.12 during the loan’s 36-month tenure.
Refinancing Student Loans:
This Student Loan Refinance program is operated by SoFi Lending Corp. (“SoFi”) in collaboration with Even Financial Corp. (“Even”). Whether you make a loan enquiry, SoFi will send your information to Even, which will then send it to its network of lenders/partners to see if you qualify for pre-qualified or pre-approved offers. Your credit information will be obtained from a credit reporting agency by the lender receiving your information. Pre-qualified and pre-approved offers from one or more lenders/partners will be given to you here on the Lantern website if you fulfill one or more lender’s and/or partner’s eligibility requirements. On our Personal Loans website and our Student Loan Refinance page, you’ll find more information about Even, the process, and its lenders/partners, as well as a loan enquiry form. Learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy by clicking the links below.
Lantern’s student loan refinancing loans are private loans, thus they don’t come with the same debt forgiveness or repayment alternatives as the government loan program, such as Income Based Repayment, Income Contingent Repayment, or Pay as You Earn (PAYE).
Notice: Due to recent legislative developments, all federal student loan payments have been halted and interest rates on federally held loans have been waived until May 1, 2012. Please carefully evaluate these changes before refinancing federally held loans, since you will no longer be eligible for these or other future federally held loan advantages if you do so.
Refinancing a Car Loan:
Caribou provided the information about auto refinancing loans to this Lantern page. The auto loan refinance information on this Lantern site is indicative and is contingent on you meeting the lender’s requirements, which include meeting the lender’s credit standards, having a loan amount of at least $10,000, and having a vehicle that is no more than 10 years old with no more than 125,000 miles on the odometer. The loan rates and conditions shown on this Lantern site are subject to change when you contact the lender, and your creditworthiness may be a factor. Additional terms and restrictions may apply, and all terms are subject to change depending on your location.
Disclosure of Secured Lending:
Terms and conditions apply, as well as state limits and minimum loan amounts. Before you apply for a secured loan, we recommend that you think about whether this is the correct loan for you. If you fail to make payments on a secured personal loan, you risk losing the assets you pledged as collateral. Not all borrowers will be eligible for greater loan amounts or the best lending conditions. The capacity to fulfill underwriting standards (including, but not limited to, a respectable credit history, adequate income after monthly costs, and collateral availability) that vary by lender determines loan acceptance and conditions.
Life insurance is a kind of insurance that protects you from
SoFi Life Insurance Agency, LLC provides insurance information on Lantern. To see our licenses, go here.
fizkes / istockphoto / fizkes / istockphoto / fizkes / istockphoto /
MediaFeed has more.
fizkes / istockphoto / fizkes / istockphoto / fizkes / istockphoto /
AlertMe
The “Does refinancing hurt your equity” is a question that many people have been asking. There are two sides to the answer, but the majority of people believe that it does not. Reference: does refinancing hurt your equity.
Related Tags
- does auto refinancing hurt your credit
- does refinancing help your credit score
- how much does your credit score drop when you refinance your home
- credit score dropped 40 points after refinance
- will refinancing my car affect me buying a house
