Does Student Loan Consolidation Hurt Your Credit?

Student loan consolidation can lower your monthly student loan payment and might even save you money on interest charges. Combining loans might seem like it could hurt a credit score because you lose a few accounts, but it won't do any damage. As long as you keep paying promptly, debt consolidation helps your credit score.

Identification

Student debt consolidation does not hurt your credit score, according to Student Loan Network. Debt consolidation shifts several loans into a single large account. The consolidated accounts display a paid-as-agreed status. You might need to apply for a new loan, which incurs a hard inquiry that dings your score slightly, but the few points you lose are almost inconsequential when applying for new credit unless you have several inquiries in a short span of time. Federal loans, however, require no credit check.

Benefits

Consolidating loans lowers your monthly bill, which frees up cash and makes it more likely you will make your payments when they are due -- helping your credit score. A few on-time payments probably won't do much to your credit score in the short-term, but years of good payment history boosts a score significantly.

Potential for Harm

The lower monthly payments lengthen the life of the loan and increase total cost of repaying it. Also, you could lose some benefits provided by the lender. If one of your loans is in deferment or forbearance, the lender may not agree to continue with the previous lender's payment plan. This could strain your finances and risk a late payment.

Tip

FinAid suggests that borrowers do not consolidate federal and private loans, because federal loans tend to have lower interest rates and better perks, such as a guaranteed deferment for hardships, not found with most private lenders. Also, a private lender might charge an origination fee on the consolidated loan and add a prepayment penalty clause.