Do Student Loans Affect Your Credit Score?

It’s not unusual for student loan balances to sit at $100,000 or more. If you’re like many people with student loan balances, you’re probably concerned about juggling loan payments with the rest of your bills.

Understandably enough, you might also be wondering, “Do student loans affect credit scores?” The answer is yes, but their effects on your credit score may be more nuanced than you’d expect. Take a closer look at how student loans and credit scores are connected.

How do student loans affect credit scores?

You probably know that almost any kind of debt will appear on and influence your credit report. Student loans might affect your credit score in a few key ways.

They show up as installment accounts on your credit report

Most types of loans, including car loans, mortgages, and personal loans, are classified as installment loans. This means that a lender gives you a lump sum of money that you then pay back in installments.

Each installment payment made on time and in full helps you establish a strong credit history. However, late payments might be reported to credit bureaus, and even one late payment (usually by 30 days or more) can cause lasting credit damage.

When you have a student loan or other installment loan on your credit report, your score might benefit from a more diverse “credit mix.” Your credit mix refers to the different types of accounts on your report.

Lenders want to make sure that you can manage several different types of credit over time. With all else being equal, having both student loans and credit cards on your report is generally better than just having credit cards.

Credit mix is a relatively minor factor, as it accounts for just 10% of your score. But if you’re trying to improve your credit, every little bit helps.

Payment history is usually the biggest factor

When calculating your FICO score, lenders tend to consider these weighted factors:

• Payment History: 35%
• Credit Utilization: 30%
• Length of Credit History: 15%
• Credit Mix: 10%
• New Credit: 10%

All of these factors matter, but as you can see, your payment history is typically the most important. Most student loans are repaid over decades, so they offer you an opportunity to establish a lengthy, positive credit history.

To reduce your risk of missing a payment and damaging your score, consider putting your loans on autopay or signing up for payment reminders.

How student loans can hurt your credit score

If you’re able to make all of your payments on time and in full, the relationship between your student loans and credit score is likely going to be a positive one. However, it’s entirely possible for your loan to have a negative impact, too.

Missing or late payments

If you make a late payment on a credit card, loan, or other type of credit account, that payment is usually reported to credit bureaus. Being late on one student loan payment might not sound like a big deal, but it can lead to major credit damage.

That’s because late payments and other negative marks on your credit report typically remain there for seven years. Although a late payment’s impact lessens over time, it may initially make your credit score drop by 100 points or more. 

Default and its long-term consequences

A single missed payment won’t immediately throw a student loan into default. However, if you fail to make a payment for 270 days, or about nine months, on a federal student loan, it goes into default. With most private lenders, a default happens sooner.

When you default, you may be subject to “loan acceleration,” which means the full amount becomes immediately due. That’s just the beginning of possible consequences, which can also include the following:

• Your credit score may drop 50 to 100 points or more
• You might lose eligibility for federal benefits like forbearance or income-driven repayment plans
• For federal loans, the government can garnish wages with no court order
• Private lenders may seek a court order to garnish wages

If you have defaulted federal loans, loan rehabilitation programs may allow you to restore your account to good standing. Private lenders usually don’t offer loan rehabilitation, but some companies specialize in refinancing defaulted private loans.

Trying to build your credit?

Dealing with student loan debt can be stressful, but if you maintain a positive payment record, your loans may help you boost your credit score. Establishing or rebuilding credit takes time, effort, and a combination of strategies. If you’re looking for some guidance along the way, Kikoff is here for you. 

We’re a credit builder app specifically geared toward people with low credit, a limited credit history, or no credit at all. We make it easy to discover the tools, tips, and strategies you need to get your credit where you want it to be. Most of our new members start with our interest-free credit line, but you can also explore options like secured credit cards, debt negotiation tools, and rent reporting.

Accessing credit-builder tools can be tough when your credit isn’t optimal, but when you sign up with us, we don’t check your credit or charge you anything. Start building a positive credit history with Kikoff today.