How Student Loan Consolidation Positively Impacted My Credit Score

Many of us have student loan debt, and if you’re a dentist or physician your student loan amount may be pretty significant. Figuring out how to go about tackling them can be quite daunting; knowing whether to consolidate or refinance, choosing from the different repayment options, and deciding which is best for you.

On my own journey to pay down my mountain of debt I stumbled upon a little surprise. I discovered that a wonderful side effect of consolidating your student loans is a credit score increase. I was able to significantly increase my credit score by consolidating my loans.

Here’s how that works:

  • One factor that determines your credit score is the number of lines of credit that you have open.  Remember that you get a loan for every semester of school and thus at the end of your four years (or however long your schooling is), you will end up with several student loans. As a general rule, If you have too many lines of credit, your score will go down.  By consolidating your student loans, you are replacing your many student loans with one new loan.  You will still have the same amount of debt, but the number of lines of credit goes down, thus increasing your score.

  • A second advantage of student loan consolidation is that it will appear that you have paid off all of your other loans.  Any record of debt repaid is a good thing!  Depending upon how your loans are consolidated, it could read that your loans were refinanced or it could read that it was paid in full.  Either way, your credit score is helped.

  • One final advantage of consolidating your student loans is that it can often lower your monthly payments.  This helps your credit score because the ratio of debt to income will go down.  

Consolidating your student loans is dependent upon the type of loans that you have.  For Federal Loans, consolidation is usually a great idea, but for private loans it gets more tricky as there are several private loan lenders to choose from (SoFi, Laurel Road, LendKey, Earnest, Splash Financial, etc). Do your research, speak with a trusted professional and choose the best option for you.