A Lesser Known Benefit | 03.26.07
A lesser-known benefit of federal loan consolidation is that it actually improves a borrowerÃ¢â‚¬â„¢s credit score. ItÃ¢â‚¬â„¢s true! Here is an explanation on how this benefit works.
Nowadays, most students need to take out a Stafford loan for every year that they are in enrolled in school to help pay for the cost of attendance. Each time they do accept the Stafford loan the school coordinates two disbursements for that academic year: one disbursement for the Fall and then the second disbursement in the Spring. If a student is in school for 4 years and accepts the Stafford loan each year those loans add up to 8 open balances on a credit report. One way to reduce the number of open accounts on your credit report is to consolidate these student loans. Once consolidated, rather than eight open balances on a credit report the computer will see eight loans paid in full and only one new consolidation loan. This is how consolidation improves your overall credit rating.
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