How Do Student Loans Affect My Credit Score?

Loans Affecting Credit Score

Whether you are a prospective student, a recent grad, or you graduated years ago, any loans you used to fund tuition can impact your finances. Generally considered a healthy form of debt, student loans often constitute individuals’ first form of major credit.

Student loans can influence three major factors used in calculating your credit score: payment history, credit mix, and length of history. Unless you miss payments or you consistently pay late, a student loan will positively impact your credit score.

Applying for loans may impact your credit score, but the loan is neutral while you are in school

When applying for loans, a private lender will conduct a credit check to access the rates you qualify for. This credit check can count as a hard inquiry on your credit score, which can cause a dip for as long as a year.

Try to submit applications during the same 14-day window, as all credit checks count as one inquiry if done within the same two weeks. You may want to time other big purchases, like a mortgage or a car loan, a few years apart from your student loan acquisition to keep your credit score at its best.

Students do not need to make payments on their student loan while in school. Called deferment, this is considered neutral and will not impact your credit score. Some lenders allow students to make small monthly payments (like $25 per month during the in-school deferment period). These payments positively impact credit score.

Your loan payment habits significantly influence your credit score



As the biggest factor that influences your credit score, payment history accounts for 35% of the FICO score calculation. Student loan payments remain especially important because lenders report them to credit bureaus in real-time. Other forms of payment, like renters’ or car insurance, are not reported at all. Consistently meeting the minimum monthly payment will positively impact individuals’ credit score as it demonstrates reliability as borrowers.

Skipping or making late payments negatively impacts credit score. The severity depends on how late you make your payments and how often you do not pay on time. Negative marks can stay on your credit report for seven years. A creditor can report late payments 30 days after the payment due date for private loan borrowers and 90 days for federal loan borrowers. 

Individuals who struggle to make payments can sometimes request an income-based repayment plan or refinance their loan for better terms.

A long repayment plan can help your score



When it comes to your credit score, you do not need to rush to repay your student loans. Having a long repayment plan helps build a long credit history, which will boost your score. Specifically, your length of credit history determines 15% of your credit score.

However, you should not take your time paying off your loans. If you can pay off your loan ahead of the repayment plan, you can eliminate that debt and reduce overall interest paid.

Loan forbearance or deferment will not change your credit score

Individuals who cannot make their student loan payments may need to enroll in deferment or forbearance to pause monthly payments. Changing your terms in this way will not impact your credit score, even if your monthly payment becomes $0. While you may still accumulate interest during this time, it may be the best option for your credit if you continually cannot make your monthly minimum.

Loan forgiveness also has no impact on credit



Loan forgiveness should not make any impact on your credit score as long as you were in good standing with the loan. If you missed payments before the loan was forgiven, the lender is not required to remove any previous negative marks. If your debt was canceled as a result of bankruptcy, that could also negatively impact your score. Otherwise, loan forgiveness will effectively operate like you have paid off the loan.

FAQ


  • Q: What credit score is needed for a student loan?

    You do not need a credit history to get a student loan. If you apply for a private loan, you usually need a cosigner with a credit score of at least 670. The better the credit score, the lower the interest rate. If you apply for a federal student loan, you do not need a cosigner.


  • Q: How much does your credit score go up after paying off student loans?

    Your credit score may drop slightly after you pay off your student loan. Closing an account will take away some of the long repayment and credit history that has been positive for your credit score. It will also slim down your credit mix, which makes up a portion of your credit score. The temporary dip will naturally rise again as you continue to build credit.


  • Q: Do student loans fall off after seven years?

    If you defaulted on your student loan, it will remain in your credit history for seven years. Your responsibility to that debt does not disappear, but the debt will no longer damage your credit score.


  • Q: Do student loans affect credit score while still in school?

    No. Until you graduate and the deferment period ends, your student loan will not impact your credit score. The lender cannot report anything to credit bureaus until you start making payments. If you want to build credit while in school, you may want to open a credit card instead of waiting for student loan payments to begin.


Portrait of Danika Miller

Danika Miller

Danika Miller graduated from Western Washington University with a BA in creative writing. She has since specialized in education and finance writing as a reporter at The Simple Dollar, Her Campus, CreditCards.com, Reviews.com, and elsewhere.

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