Does Student Loan Consolidation Affect Your Credit?

When it comes time to start repaying student loans, it can send many college grads into a tailspin, as the reality that they’ve spent years borrowing money and now have to pay it back hits them hard.  In fact, sometimes it’s just downright disheartening. Good news is that all those student loans can be consolidated into one monthly payment, lowering your interest rate and thus, your monthly payment.

But does it affect your credit? Yes, consolidating your student loans can be a great way to improve your credit and at the same time it allows you to enjoy lower payments each month.  It is, however, important to learn about consolidation loans so that you can rest assured that you are getting a good deal and not getting duped by the many consolidation loan scams going on out there. For this reason, it’s ideal to take some time to do your research on the matter before you make any firm decisions regarding your student loan.

Here are some great tips when it comes to consolidating student loans:

  1. Never combine your federal and private loans when consolidating

The interest rates on your federal and private student loans most likely vary, with the federal loans usually offering a lower interest rate. You want to avoid consolidating federal and private loans, as your chances of landing a low interest rate from a private loan consolidation is low, especially if you have a poor credit score now.

  1. Consolidating via Federal Governmental Loan Consolidation

If you are consolidating via the Federal government, good news is that they do not do a credit check on you, so if you’re credit score is low, you’ll still be able to consolidate. Using this option, you can lock in a certain interest rate and be able to choose from a Federal Repayment Plan that works for you. Keep in mind that the Federal Government will not charge you any upfront fees in order to consolidate your student loans, so if you run across a company offering you their services to help you consolidate for a small fee, beware- it is a scam.

  1. Private Loan Consolidating

If your credit is poor, it may be more difficult for you to consolidate your private loans. Sometimes it’s even difficult if you have a great credit score.  One solution is to see if you can get a cosigner who has excellent credit, as this increases your chances of being approved and getting a decent interest rate. Consider talking directly with your private student loan consolidation companies when considering consolidation, as they may be willing to reduce your interest rate without consolidating the loans.

Does consolidating my student loans really improve my credit score?

Yes, this can certainly benefit your credit score.  First, when you consolidate your loans, your lines of credit decrease, which can help your credit score. Having many lines of credit open can cause your credit score to take a hit. Second, when you consolidate your student loans, it shows that you’ve paid off a bunch of loans, which can cause your credit score to improve. Lastly, having a lower total monthly student loan payment helps when it comes to income to debt ratio, helping your credit score to increase.


If you’ve got a mix of federal and private student loans, it’s best if you consider consolidating the Federal loans. Really do your homework when it comes to the private loans and know that consolidating them is not as easy or popular for various reasons.  At the same time, always consider the other student loan repayment options as well, for there are a variety that fit different scenarios, incomes, and more.

If you have questions, contact a representative from the Department of Education and discuss your best options.  Consolidating may be your best option or they may be able to lead you in a different direction. You may also contact your financial aid office at your college for information.  If you put the time in and do your research, you’re more apt to make a decision that will give you the best option at repaying your student loans.