Refinancing my private student loans lowered my payment by $200 a month, but it also lowered my credit score. Here’s why I’m not worried.

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For the last year, I’ve been on a credit repair journey to bounce back from my past money mistakes.

I have affordable payment plans in place for my old credit card debt, and I’ve been paying my student loans diligently. I’ve also taken the time to call each of my creditors and get my debts transferred from my deadname, the name transgender and nonbinary people are assigned at birth, to my new name so I can keep my credit report up to date.

After raising my score above 700, I was finally in a position to refinance my private student loans so I could get a lower monthly payment and remove my mom as a cosigner.

My credit score went up by 40 points unexpectedly

One factor that goes into your credit score is the length of your credit history. Experts say that a long credit history — meaning accounts in good standing that have been open for many years that appear on your credit report — may raise your credit score when coupled with on-time payments.

My student loans, which were opened between 2010 and 2014, are the oldest accounts on my credit report. Refinancing my student loans meant that I would be closing my oldest accounts and shortening my credit history, so I expected my score to drop a few points.

The reason my credit score went up was because of a happy accident: I refinanced $67,000 worth of private student loans, leaving $1,038 in two out of five of my Navient accounts. I didn’t mean to leave any debts in my Navient accounts, but I simply entered $67,000 in the refinance application because it seemed easier. Because my loans were paid out by the refinance, and the two old accounts were kept open, my score went up by 40 points.

Besides refinancing my student loans, I also opened a secured credit card with a $200 limit for my phone and internet bill. I pay those off in full each month, and my new on-time payment history, coupled with the student loan refinance payout, raised my credit score significantly.

The following month, my score dropped by 12 points

I knew that credit bureaus would catch up with the changes in my account eventually, and that my 753 credit score wouldn’t last long. Soon after refinancing my student loans, I received a windfall of cash from a journalism award. I used that to pay off my remaining $332 in one of the Navient accounts.

Somehow, all four of my closed Navient accounts showed up on my credit report in the same period and, as I expected, my credit score dropped by 12 points. 

Refinancing my student loans will improve my credit score in the long run

I know that, once I close my remaining Navient account, my credit score will drop by a few more points. Fortunately, I’m focused on the long game.

My monthly student loan payments dropped from $670 a month to $462 a month after refinancing. That monthly savings alone will make it easier for me to afford my student loans and put more towards the principal balance if I have any leftover cash at the end of the month. Next year, if my credit score goes up because of improved payment history, I plan on refinancing again to see if I can get an even lower interest rate.

When I first started my credit repair journey, I got emotional over all the twists and turns of my credit. After year one, I’ve learned to accept the rollercoaster of credit, with the seatbelt of a long-term strategy to keep me in check.

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