Student loan consolidation and refinancing are two of the most popular solutions that students turn to in order to better manage their loan payments. However, both refinance and consolidation work differently from each other.
How Credit Score Affects Student Loan Consolidation
Consolidating your loans means you are simply combining multiple existing loans into a single consolidated loan. The main goal in doing this is would be to simplify your monthly payments. The interest rate on a consolidated loan is not affected by your credit score. It is simply calculated as the weighted average of your existing loans.
How Credit Score Affects Student Loan Refinance
You may be wondering if or when to refinance your student loans. With refinancing, you are actually replacing one or more existing loans with a completely new loan. You may opt to refinance to lower your monthly payments or to take advantage of lower interest rates. Whatever the reason you want to refinance your student loans, a private lender will only approve of your application if you are a responsible borrower. The only way to determine this is by checking your credit score.
With a good credit score lenders will not only approve of your refinance request more easily, they will also offer you the new loan at a lower rate of interest. Different lenders may calculate this new reduced interest rate differently so if you have a good credit score, it is a good idea to check with multiple lenders and choose one that offers you the lowest interest rate on your refinanced student loan.