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Originally Published: Aug 18, 2023
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Originally Published: Aug 18, 2023 Last Updated: Jun 28, 2024 11 min read
Illustration of a calculator with different credit scores, next to a graduation diploma
Chris Gash for Money

Student loan debt is a major burden for millions of Americans. For some people, refinancing student loans to secure a lower interest rate, lower monthly payment or a smaller number of loan accounts can help ease the burden of monthly payments. The process won’t change your total loan amount, though it could help make it easier to pay off.

But there are some requirements for refinancing, including having a good credit score. This guide will explain the relationship between your credit score and the process of refinancing student loans, including what score you need to refinance, how your score affects the terms of your new loan and how your score is affected after you refinance.

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How credit scores affect your application for student loan refinancing

When you apply to refinance your student loans, one of the first things any lender will do is perform a credit check, which includes a review of your credit score. Credit scores are generated by credit bureaus (the three major bureaus are Experian, Equifax and TransUnion), based on data about your payment history on other loans and overall credit usage.

Why lenders use your credit score

Lenders use these scores to assess your creditworthiness — the scores help predict whether you’re a risky candidate for a loan. A higher credit score tells a lender that you’re more likely to pay back a loan on time, while a lower credit score indicates you may have some less-than-ideal credit habits, or that you may have struggled to pay off a loan in the past. Sometimes a lower credit score simply indicates that you are young and have a very limited credit history. Higher scores can boost your eligibility for more favorable loan terms (think lower interest rates and lower monthly payments).

Minimum credit score needed to apply for student loan refinance

The criteria for student loan refinancing is different across lenders, but you’ll generally need a FICO score in the mid-600s to qualify. That number could be slightly higher or lower between different lenders. Lenders also look at other factors in addition to your credit score, like your debt-to-income ratio.

But remember: A score at the bottom end of a lender’s range doesn’t mean you’ll get the most favorable terms. If your credit score is fair when a lender prefers candidates to have good or excellent credit (a score in the 700s or above), you’ll likely be stuck with a higher interest rate and higher monthly payments.

When is student loan refinance a good idea?

If you’re thinking about how to refinance student loans, you should consider whether it makes sense for your individual circumstances before you proceed.

If you have federal student loans, your only option to refinance will be to swap your current loan(s) for a new debt with a private lender. Switching to a private lender will mean you no longer have access to federal student loan protections and perks, like Public Service Loan Forgiveness. The pandemic moratorium on student loan payments (set to officially end in October) also only applies to federal student loans. If you refinance, you’d no longer be eligible for federal forbearance, deferments or other types of financial-hardship programs.

But if you already have private student loans — and you’re paying a relatively high interest rate — refinancing can make more sense and can potentially help you secure a new loan with a lower rate. If you can’t get a lower rate by refinancing, you should think carefully about your goals before moving ahead with the process.

If, for instance, your primary goal is refinancing into a longer repayment term so you have smaller, more affordable monthly payments, then it may still make sense to refinance even if you aren’t getting a new interest rate that’s lower than your old one. But know that this will cost you much more in the long run, since you’ll be paying interest over a longer period of time. Keep in mind that while all federal loans have fixed interest rates, when you refinance with a private lender, you can typically choose between a fixed or variable interest rate.

Refinancing can also make sense for borrowers who have multiple student loans with outstanding balances. Refinancing will let you consolidate multiple balances into one new loan — a type of debt consolidation. This will simplify your monthly payments, as you’ll have a single payment instead of multiple. Reducing the number of loans you hold could give your credit score a boost, too. (If you have federal loans, student loan consolidation is slightly different. A Direct consolidation loan allows you to combine all your loans into a single one, but it won’t result in a lower interest rate.)

How credit scores affect your interest rate

As with any loan, a higher credit score means a lender is more likely to give you a lower interest rate on your loan. If you have a good credit score when you apply to refinance, the better your chances of securing a smaller monthly payment and paying less in interest over time. But remember: securing a lower interest rate is harder today than it was a couple years ago. Interest rates across all types of consumer loans are high as the Federal Reserve continues its fight against inflation.

A lower credit score doesn’t necessarily preclude you from qualifying for refinancing, but it does make it more likely you’ll end up with a high interest rate and less favorable loan terms.

What to do if your credit score is not good enough to refinance your student loan

If you have bad credit, or credit on the lower end of a lender’s preferred range, you still have options for refinancing your student loans.

One option is to apply for refinancing with a cosigner. That person will need to have a credit score that meets the lender's requirements, and they’ll sign onto the loan with you, the primary signer, and agree to assume the risks if you aren’t able to pay it off. That’s a big commitment — make sure you both understand what’s involved before signing.

You can also consider some ways to improve your credit score, like reducing the amount of credit you’re using in other areas, putting credit cards and bills on autopay or signing up for a free credit-building program. Then apply again after you’ve raised your score.

How refinancing your student loan affects your credit score

Your credit history determines the loan terms you're offered when you refinance, but the relationship doesn't end there.

How your credit score is affected during the application process

When you apply to refinance your student loans, the lender will perform what’s known as a “hard” credit inquiry. That inquiry will be reflected in your credit report and it could lower your score for a short period of time. If you’re applying to multiple lenders, the hard inquiries typically will count as a single inquiry if you apply to all the lenders over a short time period. But if your rate shopping extends for a month or longer, then you could end up with several hard inquiries on your credit report.

How your credit score is affected after taking out the loan

The effect of a new student loan on your credit score depends on your individual circumstances. If you consistently make your monthly payments on time, for instance, you could boost your score as you build a more robust history of on-time payments. If you pay late, your score could take a hit.

Refinancing your student loans will also affect the average age of your accounts, especially if you’re closing multiple old loan accounts and taking out just one new one. Having newer credit accounts generally lowers your score, while having longstanding accounts is generally better for your credit. Your score might take a hit in the beginning, but it will rebound as you rebuild your credit history by making payments on the new loan.

What happens to your credit score when you finish paying off your refinanced student loans

Your credit score might not change at all after you’ve paid off your new loan balance — data about your payment history over the life of the loan will continue to affect your score even though the account is closed.

Credit bureaus track how many accounts you have open at once. Your score could see a bump if you had a large number of existing loans, or it could drop slightly if the loan was one of the only accounts you had open.

What happens if you fall behind on your refinanced student loan payments

Falling behind on your refinanced student loan payments is just the same as falling behind on the payments on your student loans before you refinanced. If you are consistently late with your payments, you could accrue costly late fees and your credit score could suffer. Depending on how late your payments are, you could be subject to collections.

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Student Loan Refinance and Credit Scores FAQ

Do student loans affect your credit score?

Yes, taking out federal or private student loans will affect your credit score. Student loans can help you build a strong credit history, if you consistently make on-time payments. If you miss payments, then your student loans will hurt your credit score.

Does refinancing student loans hurt your credit?

It depends on your individual circumstances. Hard credit inquiries from lenders during the application process may take a few points off your score in the short term, but consolidating multiple loans into one loan that you're more easily able to pay back over time could boost your credit in the long term.

What does your credit score need to be to refinance student loans?

There's no universal minimum credit score that lenders require from refinancing applicants. In general, you should have a credit score in the mid-600s, though the exact requirements vary between lenders. A score on the lower end of a lender's preferred range will mean less favorable loan terms, while a higher score will mean more generous terms (like a lower interest rate and lower monthly payments).

Bottom line to credit scores and student loan refinance

If you’re looking to refinance your private student loans, your credit score will have a big impact on the process. A higher credit score will help you secure a lower interest rate, but it isn’t strictly necessary to secure a new loan during the refinancing process.

If refinancing makes it easier to afford your payments and helps you stick to a repayment plan, the process could help you improve your credit in the long run.

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