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Depending on the type of loan you have, you may experience a change in your loan servicer at some point during its repayment term. This change can impact not only your repayment schedule and where you send your payment, but it could also potentially affect your credit score.
Understanding why loan servicers change and how that process can affect you will give you an idea of how to prepare.
Why Did My Loan Servicer Change?
There could be a few different reasons why your loan servicer has changed, including:
- It didn't renew its contract with the governement. Federal student loan servicers have contracts with the federal government to collect payments and handle other services on its behalf. If a company doesn't renew its contract when it expires, your loans will be transferred to a different federal loan servicer.
- Your lender or servicer sold your loan. It's common in the mortgage industry for lenders to sell your loan to a loan servicer shortly after closing. Additionally, that servicer can turn around and sell your loan to another servicer at any point.
- You consolidated your debt. If you've consolidated your federal student loans or refinanced any loan, you'll typically get a new lender or loan servicer in the process.
How Does a New Loan Servicer Affect Your Credit?
A simple transfer of your loan from one loan servicer to another generally won't impact your credit on its own, especially if you ensure that your monthly payments continue seamlessly. However, some things can happen during the process that can affect your credit score.
You Miss a Payment
With a new loan servicer, you'll likely need to update where you send your monthly payments and possibly even your monthly due date. To avoid hurting your credit during the transition, continue to make payments to your current servicer until you receive details from the new one. You may want to reach out to your lenders if you are unsure how or where to make your next payment.
Also, keep in mind that late payments aren't reported until they're 30 days late. So if you do miss a due date, get current as quickly as possible.
A New Loan Is Created
In some cases, changing the loan servicer could create a new tradeline, zeroing out the balance of the original loan. If this happens, the original account will appear on your report as paid off and closed, and the new account will appear separately. Anytime there is a significant change to your accounts, you may see a temporary dip in your credit score.
Additionally, if you've consolidated your federal student loans or refinanced your student or mortgage loan with a private lender, you're creating a new account with the new lender.
In this case, your credit may be impacted if the lender or loan servicer ran a hard inquiry on your credit reports when you applied for the new loan. It may also impact your credit history, as opening a new account will reduce the average age of all of your credit accounts.
Actions to Take if Your Loan Servicer Is Changing
You'll typically get advance notice when your servicer is changing. If you receive such a notice, here are some things you can do to limit the impact on your credit:
- Make sure your contact information with your current servicer is up to date.
- Open all emails and mail from your current and new loan servicer.
- Set up automatic payments with your new loan servicer as soon as you receive instructions on how to do so.
- Save copies of your payment history with your current loan servicer in case of miscommunication.
- Watch out for potential scams that could take advantage of the transition and try to steal your personal information.
Monitor Your Credit Regularly to Track Potential Changes
As you go through a loan servicer change, it's a good idea to keep track of your credit score throughout the process to understand how it might impact you. With Experian's free credit monitoring service, you can get access to your Experian credit report and credit score powered by Experian data. You'll also get real-time alerts when changes are made to your credit report.
As you track your score, note other changes that are happening at the same time. For example, if you pay off another loan, miss a payment, increase your utilization rate or do anything else that could affect your credit score, it's important to understand the impact these changes may have as well.