Do Student Loans Affect My Credit Score?

Updated April 12, 2023

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Over 60% of 2019 college graduates possess student loan debt, and the typical borrower owes approximately $37,000 to lenders. Young professionals with debt experience difficulty saving for retirement or a down payment on a house. Missing one or more payments adds more financial risk, including a lower credit score.

Credit scores date back to the 1950s, when Fair, Isaac, and Company (FICO) developed the FICO® Score. The modern 300-850 FICO® Score debuted in 1989. Experian®, TransUnion®, and Equifax® analyze Americans' payment histories, debt amounts, and credit inquiries to determine a score. A higher score signifies creditworthiness, qualifying borrowers for larger loans and lower interest rates.

Recent college graduates with student loans start building their credit by making on-time payments and using a credit card responsibly. The following sections detail the link between applying for and paying back student loans and credit score. Further sections outline how borrowers in need may qualify for assistance.

Will Applying for Student Loans Impact Your Credit Score?

Student loans appear on credit reports as an installment account. Other loans falling under this umbrella term include auto loans and home mortgages. A credit report defines credit card debt and home equity loans as revolving accounts. The different loan types make up a credit mix. An individual's credit mix influences approximately 10% of their credit score.

Many landlords and employers perform a soft credit inquiry on applicants. Soft credit inquiries, such as criminal background checks, help requestors judge applicants' trustworthiness. Banks and lending institutions perform a hard credit inquiry when borrowers apply for a new loan or credit card. Unlike a soft inquiry, a hard inquiry negatively affects credit score. However, this credit score dip lasts only a few months if borrowers make payments on time.

Time matters when applying for some student loans. College students must submit FAFSA results by a specific date to obtain low-interest federal loans. Private lenders do not use a specific application deadline.

Prospective and current degree-seekers manage their student loans' credit score impact by making payments on time. Soon-to-be graduates should calculate their potential debt-to-income ratio after receiving job offers. A higher salary helps balance student loan debt and could equate to a better credit score.

Borrowers keep track of their student loans credit score by accessing the federal government's free annual credit report. The report details Experian®, TransUnion®, and Equifax® scores. It also includes information on delinquent payments and other issues causing a lower-than-expected score.

Do Loan Payments Influence Your Credit Score?

The relationship between student loans and credit score depends on payment history. Some college graduates with a lucrative job improve their score by paying off their student loans quickly. Note that borrowers with both credit card and student loan debt should pay off the former first.

Missing payments negatively affects a score for up to seven years. Those in danger of missing one or more student loan payments should contact their lender as soon as possible.

Replaying Loans

The COVID-19 pandemic prompted the government to pause federal student loan payments and temporarily eliminate interest. These advantages allow borrowers to save money on their student loans and pay them back as soon as possible. Loans from private lenders continue to incur interest.

Paying off loans confers multiple benefits, including qualifying for a home mortgage, building an emergency fund, and paying off credit card debt. Negative outcomes come to borrowers who become delinquent or default on their student loans. Bankruptcy does not automatically cancel student loan debt and borrowers face an uphill battle to discharge federal student loans during the proceedings. Bankruptcy affects an individual's credit score for seven years.

Loan Forbearance or Deferment

Loan forbearance and deferment provide relief to borrowers in need. Forbearance refers to when a lender pauses or reduces payments temporarily. A borrower must demonstrate financial hardship to qualify. Although beneficial in many ways, forbearance does not stop interest from accruing. Borrowers who choose this option end up owing more money.

Many students sign up for deferred private and federal loans, meaning borrowers do not start making payments until after graduation. Interest may accrue before graduation, depending on the loan. For both forbearance and deferment, loans appear on borrowers' credit reports but do not affect the score while in school.

Loan Forgiveness

The federal government excuses student loan debt in one of two ways. Forgiveness and cancellation refer to the same process wherein the government no longer requires repayment due to employment. Teachers who work for five years in a low-income school receive this benefit. Loan forgiveness and cancellation do not affect a credit score in most cases.

Like forgiveness and cancellation, discharge excuses borrowers from repaying student loans. However, discharge refers to outside circumstances including disability, school closure, death, and a false creditworthiness certification. Qualifying for discharge involves submitting financial documents to the federal government.

Questions on Credit Score, Loans, and How they Affect Students

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: Will my 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.

Additional Resources

The official Student Aid website details everything college students must know about federal student loans. Users create an account to fill out the FAFSA and explore relevant financial aid options. Degree-seekers turn to the CFPB to evaluate private lenders offering student loans. Other CFPB resources include tips on paying for college, money-management fundamentals, and loan repayment budgeting advice. Degree-seekers unfamiliar with student loans or personal finance can turn to this comprehensive guide. It includes budgeting tips, the differences between private and federal loans, and advice on paying back student loans successfully.
Portrait of Thomas Broderick

Thomas Broderick

Thomas Broderick is a freelance writer and the owner of Broderick Writer LLC. He creates study guides, informational websites, and blog posts for clients in the education field. Thomas is also a published author of over 20 short stories and a member of the Science Fiction & Fantasy Writers of America.

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