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Do Student Loans Affect a Credit Score?

Published July 27, 2023
6 min read

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Key points about: how student loans impact credit scores

  1. Student loans can affect your credit score in both positive and negative ways.

  2. Ensuring your installments are paid on time, every time, can improve your payment history and help your credit score.

  3. A late or missed student loan payment can negatively impact your score.

Wondering if taking on student loans will affect your credit score? Similar to a regular loan or using a credit card, a student loan can affect your score in positive and negative ways. Student loans can impact a number of factors that are used to calculate your credit score. A late payment could cause your score to fall. Having a student loan improves your credit mix. We’ll look at these and other factors to see how student loans affect credit scores.

How student loans can affect a credit score

A student loan is a type of installment loan, which is simply a loan you repay over time with scheduled payments, similar to a mortgage or car loan. Each payment includes a portion of the principal amount plus interest. These types of loans can play a factor in your credit score.

Several factors contribute to your credit score and different scoring models use various methods to calculate your score. For example, FICO® Score, which 90% of top lenders use FICO® Credit Scores,1 uses the following categories and weightings:

  • Payment History (35%). Your payment history measures whether or not you make your payments on time. If you pay your student loan late or miss a monthly payment, this can negatively impact your score. If you consistently make your payments on time, this can positively impact your score.
  • Amount of Debt (30%). This portion of your score is based on how much available credit you are using. This is also known as your credit utilization ratio. Student loan debt may impact your installment loan utilization (and it may impact your debt-to-income ratio if a lender calculates that data element). Revolving credit utilization is affected by revolving credit, such as credit card debt.
  • Length of Credit History (15%). This factor looks at the age of credit in your account. Creditors want to see a long history of responsible credit use. Taking on a student loan early on in your financial journey can help you start your credit history.
  • Credit Mix (10%). Creditors like to see that you can manage a mix of different types of credit, including credit cards, installment loans, and more. By borrowing a student loan, you add an installment loan to the mix.
  • New Credit (10%). When you apply for new credit, a hard inquiry is performed. Too many hard inquiries in a short period of time can harm your score. However, there are some exceptions. If you have multiple student loan inquiries in a short time (usually 14 to 45 days) they are often treated as a single inquiry, but it will depend on the credit scoring model used, according to FICO.

How can student loans help your credit score?

If you want to use your student loans to help your credit score, there are a few things you can do, including:

  • Pay your installments on time. Your payment history accounts for the largest portion of your credit score. When you pay your installments on time, this demonstrates responsible credit use and can help your credit.
  • Length of credit history. Getting a student loan early on can also help your credit history, as it usually takes a long time to pay off. This can help you establish credit and maintain a longer length of credit history until you fully pay the loan.
  • Increasing mix of credit. Your student loan can also help to diversify your credit. This shows lenders that you are capable of managing different types of accounts. In general, someone who can successfully manage a credit card, student loan, auto loan, and personal loan can be viewed more favorably than someone with a less diverse mix of credit.

How student loans could hurt your credit score

Just as student loans can help your credit score, they can also hurt your credit score if not properly managed.

  • Missed student loan payments. Missing an installment payment can hurt your score. The longer the missed payment is past due, the more it may can hurt your score. According to the Federal Student Aid website, if you miss a payment, your loan is considered delinquent, and after 90 days your loan servicer may report it to the three major credit bureaus. If you continue to miss payments, your loan can go into default, which can cause your score to drop further. Late payments can stay on your credit report for up to seven years after they’re first reported, according to the Federal Student Aid website.
  • Closed credit account. While a student loan can add to the length of your credit history while you are paying it off, once it is paid in full the account is closed. A drop in score may be noticed when your installment debt is paid off in full. However, according to Experian you should see your score rebound over time as you consistently pay all bills on time and keep debt levels low.

Does refinancing student loans affect your credit?

Refinancing your student loans can potentially impact your credit score in a few ways.

To refinance, you may need to shop around to find the best interest rate and terms on other loans, which could mean applying for a few. This can result in hard inquiries. Remember, too many hard inquiries can have a greater effect on your score if they are spaced far apart, usually more than 45 days, according to FICO.

If you refinance, it can also impact the length of your credit history. This is because the original loan is paid off in the refinance and replaced by the new loan. However, if you can secure a lower interest rate, refinancing might have a positive effect on your credit score by reducing the amount of your payments and helping you pay them on time.

If you’re trying to decide whether to refinance, you’ll have to consider the trade-off between potentially affecting your credit score versus saving money with a loan that offers a lower interest rate.

Did you know?

When you close a student loan account by repaying the entire loan, this may impact your score. This is common, however, and usually the impact on your score will lessen over time if you continue to maintain good credit habits.

Learn More

Does student loan forgiveness affect your credit?

Forgiveness of federal student loans can also affect your credit score. When your student debt is forgiven, this can lessen the diversity of your credit mix. Creditors generally like to see a mix of installment and revolving credit. If your  installment loan is removed and you only have a credit card remaining, this could result in a slight and short term impact on your credit score. Remember though, your credit mix only accounts for 10% of your score.

Additionally, if your federal student loan was one of your oldest credit accounts when your loan is forgiven and the account is closed, it may result in a slight dip.

According to the Federal Student Aid website, if your loan is discharged (as opposed to forgiven), due to a disability or the closure of the school where you got your loans, any adverse information on your credit report could be deleted.

Do student loans affect your credit score? Yes, they can, in both positive and negative ways. While missing a payment can negatively affect your credit score, a history of consistent payments may help your score. You can also use student loans to help establish your credit history and diversify your credit mix., It’s nice to know that if you manage them responsibly, you can use them to make a positive impact on your credit.

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