Your credit score is an essential part of your life. It affects everything from the rates on your car loan to whether or not a landlord approves your apartment lease. But millennials have lower credit scores than other generations. People between the ages of 19 and 34 have an average credit score of 625, according to data collected by Experian. This puts them in the “poor” credit score range.
Bad credit can have significant implications on your financial life. That’s why it’s so important to work on building your credit. Once you have improved your score, good credit can help save you thousands on your student debt.
Find out why now’s the perfect time to use your good credit score to refinance your student loans.
What is refinancing?
If you have student loans, refinancing can help you take charge of your debt and save thousands. You will work with a private lender to take out a new loan for the same amount of your old one. Once the new lender approves your application, they pay off your original loan on your behalf and you begin repaying your new loan.
If you have multiple loans, you can take out a single refinancing loan to cover the balance of all of them. That means you you’ll have just one lender and one easy monthly payment.
Refinanced loans have completely new terms, including a new interest rate and repayment term. You can often get a significantly lower interest rate or a reduced monthly payment, saving you money and freeing up cash in your monthly budget.
Your rate is dependent on your score
When you apply for a refinancing loan, lenders take into account several variables. They look at your income, degree type, and your credit score. If your credit score is too low, they will not offer you a loan at all, even if you earn a high salary.
Most lenders require a score of at least 650 or higher. If like most millennials your score is lower, you’ll need a cosigner or the company will deny your application.
If your credit score meets their standards but isn’t excellent, you will likely get a loan with a higher interest rate. For lenders that offer loans at 2% to 6% interest, that means you’ll be at the higher end of their range.
A lower score can cost you
If you have a high-interest student loan to start with — some are as high as 8% — refinancing can be a smart decision, regardless of your credit. But the worse your credit, the less money you’ll save.
For example, let’s say you have a $10,000 loan at 8% interest. If your credit score just barely meets lender’s minimum requirements, you might be able to get a refinancing loan at 6%.
By refinancing at 6%, you’d save $1,237 in interest. That’s a substantial benefit. But when you compare it to the savings someone with excellent credit could get, it’s much smaller.
Someone who has good credit and meets the lender’s other criteria could get a loan with an interest rate as low as 2.5%. If they refinanced that same $10,000 loan at that interest rate, they’d save $3,247. That’s an additional $2,000 savings over someone with lower credit and a higher refinancing rate.
Student Loan Refinancing Calculator
Already refinanced? Consider doing it again
Refinancing your high-interest student loans can save you hundreds or even thousands of dollars over the length of your loan. That’s money you can use to pursue other goals, such as building your retirement nest egg, buying a car, or saving up for a house downpayment.
Even if you already refinanced your loans, it may be worth refinancing a second time if you’ve improved your credit score. If you refinanced your loans early in your career when your score was lower and you had an entry-level job, your interest rate is probably than it would be today.
You can refinance your loans again to take advantage of your new and improved score and your higher income.
How to improve your credit score
If your credit score isn’t quite high enough to get you a lower interest rate, work on improving it now. If you’re diligent, you can boost your score and be ready to refinance in just a few months. Some of the things that you can do today to help your credit include:
- Setting up automatic payments: On-time payments are one of the largest components of your credit score. If you have trouble remembering to pay your bills on time, setting up autopay on your rent, utilities, and other expenses can help.
- Paying down debt: Your credit card and loan balances affect your credit score; paying them down can boost it. Put any extra money you have to your high-interest debt.
- Reviewing your credit report: Check your credit report for free at AnnualCreditReport.com and look for fraudulent charges or errors. Mistakes on your report could be dragging your score down.
- Increasing your credit limit: The credit bureaus look at your available credit to determine your score. You can improve your score overnight by contacting your credit card company and asking for a credit line increase.
Use your good credit score to refinance
Once you’ve worked hard to improve your credit, take advantage of your new score and put it to work by refinancing your debt. You can save thousands of dollars on your loans and become debt free faster by using your credit score to refinance.
Ready to start? Check out this list of the best banks to refinance your loans.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Rates (APR)||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!|
|2.58% - 7.25%||Undergrad & Graduate||Visit SoFi|
|2.99% - 6.99%||Undergrad & Graduate||Visit Laurel Road|
|2.57% - 6.32%||Undergrad & Graduate||Visit Earnest|
|2.56% - 8.12%||Undergrad & Graduate||Visit Lendkey|
|2.57% - 6.49%||Undergrad & Graduate||Visit CommonBond|
|2.63% - 8.34%||Undergrad & Graduate||Visit Citizens|
Student Loan Hero Advertiser Disclosure
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.