I would like to know if consolidating a student loan and creating a new account affects your credit score?I have two older current loans which I am thinking of consolidating, because of the lower interest rates. I have a good long payment history with the two loans which I believe helps my credit score. I would like to know if creating a new loan account (consolidation) with no payment history lower my score?
I believe the answer is yes. On the report I saw, 6 loans totaling about 15K were consolidated into 1 with a net result of 6 paid loans with zero balances & older origination dates and 1 new loan. Ex showed the pay-offs but not the new one , Eq & TU showed the pay-offs and the new loan, all 3 scores zoomed-- with the biggest increase on the Eq. I was actually surprised at how many points it generated at Eq. Strange formulas. Same debt, lower interest rate, higher scores. Seems like a no-brainer.
Consolidate based on interest rate, not score. If you consolidate with the William D Ford consolidation program, for instance, you'll likely shed a point or 2 in interest. If it takes 10 years to pay it off, that's a lot of money you'll save. The old loans will help as they're then paid. The new loan will slightly hurt the aging, but the effect should be positive on score. but again, for this decision, the interest rate is really the deciding factor.
