Does Refinancing Your Student Loans Hurt Your Credit Score?

by Allison Wignall on December 2 2020

By itself, refinancing your student loans will not do any significant damage to your credit score. In fact, refinancing is a smart financial move overall. It can help you get a lower interest rate and reduce the overall cost of your debt. This will make the monthly payments more affordable and also easier to manage. Over time, the consistent timely payments can even help you build your credit score.

However, refinancing can hurt your credit score if you go about it the wrong way. Being irresponsible with your monthly payments will damage your credit further.

To start, it’s important to understand how refinancing works and how it affects your credit score. This will help you make smart refinancing decisions with minimum impact on your credit.

The Refinancing Process & Its Impact on Credit Score

Refinancing involves converting one or more old loans into a new loan with new terms and lower interest rates. The main goal of doing this is to snag a lower rate on the loan. When you decide to refinance, the first step is to shop around for the best offer. Not all lenders offer the same interest rates to all borrowers. They give borrowers personalized quotes based on their credit history and their current financial situation.

To give you a personalized quote for refinancing, the lender will first do a soft credit pull. This soft check allows the lender to get a better idea of your credit history. If you have a good credit score, the lender will offer you the loan at a lower interest rate. This initial query, or soft pull, will not shave any points off your score. Your credit will remain unaffected.

You should know, however, that this is just an approximate rate at this stage. The lender will want to do an in-depth credit check, or a hard pull, before giving you a finalized quote. This is to determine whether you are a high or low risk borrower. The lender will do a hard credit pull only after you confirm that you wish to ahead with the loan application.

A hard pull will cause a drop in your credit score. However, and this is important to note, the drop is negligible and it’s only temporary. A single, hard check on your credit won’t do any major, long-term damage to your credit score. Moreover, the benefits of refinancing can far outweigh this drop in score. You will be able to build it up again quickly with your low-interest refinanced loan.

What can hurt your credit score is performing multiple hard credit checks within a short time. This can happen if you apply for a loan and the lender changes the preliminary offer after pulling your full report. If you are not satisfied with the new terms, you may decide to apply to another lender. Unfortunately, submitting multiple applications will warrant multiple credit checks, which will hurt your credit score significantly.

3 Things You Can Do To Benefit From Refinancing Without Hurting Your Credit Score

Refinancing is the best way to reduce the cost of your student loans. As long as you shop for rates the right way and make all your payments on time, refinancing shouldn’t hurt your credit score. It could actually help build your credit by making it easier for you to pay off your loans faster.

Ultimately, your aim should be to benefit from refinancing without hurting your credit score. Here are three things you can do to achieve this goal:

#1 – Limit Your Loan Application Window

Every hard credit pull that is performed will cause a small drop in your credit score. Too many hard pulls done at the same time can cause your credit to drop sharply. This is something you definitely want to avoid, and you can.

Remember, a rate query will not warrant a hard credit check. Only a loan application will. So start by making rate inquiries only. Go through all the quotes you receive and only submit one application for the best offer.

If you find yourself in a situation where you need to reapply, you should try and do this within a 30-day window. Your FICO score won’t be affected if multiple student loan inquiries are performed within this 30-day period. This is the score that lenders will look at when assessing you for a loan.

Multiple inquiries that are performed over a couple of months can be more detrimental to your credit. The lower credit score will also cause lenders to see you as an ‘irresponsible borrower’. To offset the risk, they will charge you a higher interest rate on your refinanced student loan.

#2 – Continue Making Your Monthly Payments Until The Loan Refinance Process Is Complete

It can time, sometimes months, to complete the loan refinance process. During this time, you are still responsible for making the payments on your original student loan. Continuing to make on-time payments will protect your score.

If you discontinue payments prematurely your lenders could report the late or missed payment to the credit bureau. This late payment report will damage your credit score significantly.


Until such time that the refinancing process is 100% complete, keep making your monthly payments on time, all the time.

# 3 – Be Responsible With Payments on Your Refinanced Student Loan

You’ve finally managed to refinance your student loans with minimum impact on your credit score. Now you need to be extra careful not to miss a payment deadline or skip payments on your refinanced loan. Missing and late payments do the most damage to your credit score. A single overdue payment will typically be reported to the credit bureaus within 30 days of the due date. This can then stay on your credit report for up to 7 years. To avoid getting into this situation, make sure to choose repayment terms that work for your budget.

Doing these three things will help you maximize the benefits of student loan refinancing while minimizing its impact on your credit score. 

We hoped you enjoyed this article! Remember, you can and potentially lower your monthly student loan payments and save money.