Refinancing with Earnest
Refinancing rates from 2.54% APR. Checking your rates won’t affect your credit score.
You’ve heard about student loan refinancing. You learned how you can consolidate your student debt with a lower-rate loan. Maybe you even decided you’re going to do it — but then you started worrying about your credit score.
It’s important to understand how student loans affect credit scores — and how refinancing plays into that. Here’s what you need to know about your credit score, student loans, and refinancing.
How do student loans affect your credit score?
Like all debt, student loans affect credit scores. But that isn’t necessarily a bad thing.
In fact, your student loans can positively impact your credit score. If you make on-time monthly payments, student loans give you the opportunity to show lenders you can use credit responsibly. If you also have credit cards, student loans enable you to have a better credit mix — which shows you can effectively manage different types of debt.
Payment history and credit mix make up a combined 45 percent of your credit score. Performing well in those two areas can raise your score substantially.
Lastly, the unfortunate fact that you’ll probably be paying your student loans for several years enables you to build a long credit history. The length of your credit history makes up another 15 percent of your score.
Student loans can affect credit scores in negative ways, but whether that happens is up to you. If you make late payments or go into default, your credit score will take a serious hit. Just one missed payment can damage your credit score for more than a year, according to VantageScore.
Some borrowers worry that high amounts of student loans might hurt their score. However, student loans are not factored into your credit utilization, which tracks how much revolving credit you’re using.
And while student loans are factored into your debt-to-income (DTI) ratio, this ratio isn’t factored into your credit score. However, lenders do look at your DTI when deciding to approve you for credit.
When you think about how student loans affect your credit score, you shouldn’t worry too much. As long as you always pay your monthly bill on time, the effect will be positive.
4 facts about credit scores and student loan refinancing
Now that you know how your student loans can affect your credit score, let’s talk about how refinancing your student loans can impact your score.
1. You can qualify for refinancing without hurting your credit score
Many top student loan refinancing lenders don’t do a hard credit pull before showing you offers. That means you can see what kinds of interest rates and terms you might qualify for without hurting your credit score.
This is possible because of something called a soft credit pull. A soft credit pull is a way for lenders to put together a prequalification offer for you without having to request your credit report.
This gives you a chance to collect offers from more than one lender without hurting your score. After you’ve reviewed all your offers, you can compare them before applying for the best deal. Keep in mind, the offers you’re shown and the actual terms you qualify for once you officially apply can be different, but they should be close to the same.
2. You can increase your chances of approval by paying down revolving debt
If your credit score is preventing you from being approved for refinancing and you’re carrying a balance on your credit card, there’s a simple way to boost your score.
Reduce your credit card debt as much as possible before you reapply for refinancing. This will lower your credit utilization ratio and increase your credit score. An even faster method is to request a higher credit limit on your card. That, too, will reduce your credit utilization.
But if you do request a higher credit limit, don’t use it. Going deeper into debt will only increase your credit utilization and cost you money.
Try to keep your credit utilization at 30 percent or less. In fact, if you aren’t carrying a balance on your credit card right now, keep it that way for one full billing cycle before you apply for student loan refinancing. That way you can be sure that your balance is reported as zero when refinancing lenders pull your credit report.
3. Auditing your credit report can increase your chances of approval
Another way to improve your chances of approval is to audit your credit report. You can get free copies of your report at AnnualCreditReport.com.
Auditing your credit report could uncover errors you didn’t know about or past debts that went off to collections. Even a bill you forgot about from years ago could be showing up on your report. By reviewing your report annually from each of the three credit reporting agencies, you can ensure that your credit score isn’t being dragged down by a debt or error you didn’t know about.
If you do see an error or fraudulent account on your credit report, dispute it immediately.
4. Refinancing student loans won’t have lasting damage on your score
Finally, when you think about refinancing or student loan consolidation and credit scores, don’t sweat the effects on your credit too much. While applying for a new loan will impact your score, the damage won’t be that bad.
According to myFICO, “For most people, one additional credit inquiry will take less than five points off their FICO scores.”
Five points aren’t that much in the grand scheme of things. The real danger comes when you formally apply for a lot of credit at the same time because then those points can start adding up. That’s more reason to collect prequalification offers from various lenders but then only apply for the best one.
As for the effect of taking on new debt, it’s a bit of a wash in this case. Your refinanced student loan will immediately be used to pay off your current student loan or loans. Therefore, your debt amount will remain the same.
Refinancing your student loans could be worth the hit to your credit score
As important as it is to understand refinancing and how student loans affect credit scores, it’s even more important to remember why you wanted to refinance your student loans in the first place.
Ultimately, refinancing student loans is all about getting a lower interest rate so you can pay your student loans off faster or achieve lower monthly payments. Either way, paying less in interest is far more beneficial than losing a few points on your credit score.
It’s easy to get caught up in the race for the best credit score possible — just don’t let it lead you to decisions that are bad for your bottom line. Learn to balance the two for your best financial outcome.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.54% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|