Will consolidating my student loans help my fico scores
However, federal PLUS loans do require that borrowers not have an adverse credit history, which is defined by Fin Aid as “being more than 90 days late on any debt, or having any Title IV debt within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or write-off.” For private lenders, your credit score is usually a key factor in determining not only student loan approval, but also the attached interest rate.
In other words, the better your score, the better your rate.
Some people reason that because education debt is “good debt,” FICO must view it more favorably than other types of debt.
And because credit scores can be improved by having open accounts that are paid on time, they think that paying off a student loan early might actually work against their score.
But, while there’s no definitive answer to this question (remember: black box), there are a few things to keep in mind before buying into this belief.
First, FICO doesn’t see your student loan debt as being good or bad.
Invest wisely in your education, and those loans should pay off in the form of higher income over time.
Most federal loan lenders and some private lenders offer loan deferment and/or forbearance, allowing you to temporarily suspend payments, which will minimize the impact on your credit score.But the good news is that FICO attempts to distinguish between a request for a single loan and a request for many new credit lines.As long as you rate-shop in a concentrated period of time, you should be okay.Second, it’s true that FICO likes to see how you manage your debt.So, if you have an open account in good standing, that could help your score—but the impact would likely be small.