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Do Student Loans Affect a Credit Score?

Last Updated: July 3, 2024

7 min read

Table of contents

Key Points:

Student loans can affect your credit score in both positive and negative ways.
When you pay installments on time, every time, you can improve your payment history and help your credit score.
A late or missed student loan payment can negatively impact your score.

Are you wondering if taking on student loans will affect your credit score? Similar to a regular personal loan or using a credit card, student loan debt can affect your score in positive and negative ways. A late payment could cause your score to fall. But having a student loan improves your credit mix. We'll look at these and other factors to see how student loans affect your credit score.

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 (like 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.

Your FICO^® Credit Score,¹ which 90% of top lenders use FICO^® Credit Scores, applies the following categories and weightings:

Payment History (35%). Your payment history measures when 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're 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). Student loans are unlike revolving credit utilization, like a credit card or line of credit, which are accounts that have a credit limit.
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. When you take on a student loan early in your financial journey it 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, it’s considered a hard inquiry on your credit history. Too many hard inquiries in a short period of time can harm your score.

However, there are some exceptions to hard inquiries. If you have multiple student loan inquiries in a short time, they might be treated as a single inquiry so you can comparison shop, according to the Consumer Financial Protection Bureau^® (but it will depend on the credit scoring model used).

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.
Add to your length of credit history. You can help your credit history by taking on a student loan early in your credit journey. This is because it usually takes a long time to pay off. The student loan can help you establish credit and maintain a longer length of credit history until you fully pay the loan.
Increase your mix of credit. Your student loan can also help to diversify your credit. This shows lenders that you can manage different types of accounts. Your credit history can be positive if you can show you can manage a mix of loans like a credit card, student loan, auto loan, and personal loan.

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 responsibly managed.

Missed student loan payments. When you miss an installment payment it can hurt your score. The longer the missed payment is past due, the more it can hurt your score. The Federal Student Aid website states that if you miss a payment your loan is considered delinquent. 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. A student loan can add to the length of your credit history while you are paying it off. However, once you pay in full the account will close. A drop in score may happen when you pay off an installment debt in full. 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?

When you refinance your student loans it 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.

If you refinance, it can also impact the length of your credit history. This is because the new loan pays off the original 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.

If you’re trying to decide whether to refinance, weigh 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 and the impact on your score will lessen over time if you continue to maintain good credit habits.

Learn About Student Credit Cards

Does student loan forgiveness affect your credit?

Forgiveness of federal student loans can also affect your credit score. Forgiveness is when your federal loan servicer will write off your remaining debt and you don’t have to repay. While great for your pocketbook, it can lessen the diversity of your credit mix and affect your credit score.

Creditors like to see that a borrower has a mix of installment and revolving credit. If a credit bureau removes your installment loan (student loan) from your credit history 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 and financial health.

Additionally, if your federal student loan was one of your oldest credit accounts, it may result in a slight dip in your score when forgiven.

The Federal Student Aid website explains that 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.

You should now understand that student loans affect your credit score 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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