Paying for college in the United States is no easy task. Because of this, many parents start saving from the time their children are born to pay for college tuition.
However, not all of them can do so, so sometimes young people find themselves in need of taking out a college loan. In these cases, we sometimes need to apply for a refinance and wonder whether this will affect the credit or not.
How will refinancing my student loan affect my credit?
Yes, there can be a negative impact on your credit, but it is usually very minimal. However, there are ways to reduce the damage as much as possible, and you can do this by choosing the best refinancing option. You do this by shopping for offers from online lenders, banks, and credit unions.
Also, for most lenders refinancing is only about gently pulling back a loan, so they are not looking to affect their customers with their loans.
On the other hand, keep in mind that there are ways in which your credit can be severely affected. One of them would be sending more than one application in several months or consulting different entities. The latter can lower you up to 5 points for each inquiry.
How can I avoid having my credit affected after refinancing?
The most important thing is that you do not make hasty decisions and do not refinance with just any company. Spend several days comparing various options to choose the one that offers the lowest interest rate.
The applications you complete will require a credit check, so limit yourself to only submitting applications to the best options.
However, some lenders, such as FICO or Vantage, offer an average period of 30 and 14 days, within which you can make more than one inquiry, and your credit will not be affected by it.
Another way to reduce the risk of affecting your credit is to keep paying your student loan amounts until you are sure of the start of the refinanced loan. If your account has late payments, your credit score will be affected.
On the other hand, be careful about missing or delaying payments, as they will be on your credit history for many years and may hurt you on future credit applications.
To avoid missing payments, only choose loans that fit your budget. Don’t rush to pay over a shorter period because it’s better to pay low amounts over the years than high amounts that you won’t be able to cover in a few months.
Many lenders allow borrowers to make additional payments, so if you want to get out of debt fast, first secure the amount you can afford and then add extra payments to your debt if you have more money at the time.
Is credit card refinancing bad?
It depends on what you are looking to accomplish. Like most decisions, it has its advantages and disadvantages. Among the advantages, you get low-interest rates, fixed monthly payments, and a repayment term that’s between 3 and 5 years.
However, among the disadvantages, we get that the payments can add up, and your credit score may not qualify you for the best rates. In addition, you must offer property as collateral, so if you do not meet the monthly payments, you could lose your home.
In addition, you will be paying the loan for several years, between 3 and 5 years, which could be considered a long time. Finally, if the loan is personal, the processing time could be very long, which many people do not like.