Financial Fundamentals Blog

How Do Student Loans Really Affect Your Credit Score?


If you took out student loans for your college education, you may be wondering how student loans affect credit scores. 


Your credit score is one of your most important assets and impacts many things in your life, such as your ability to rent an apartment, purchase a house or car, or apply for a personal loan or credit card. Therefore, it makes sense that you’re considering how your student loans affect your credit score. 


When so much depends on your credit score, it’s vital to understand the impact of student loans on your score. Student loans impact your credit score in a number of ways, and today we’re removing the mystery of how your credit score is affected and how you can pay off your student loans. 


How Do Student Loans Affect Credit Scores?

Before digging into how student loans affect your credit score, it’s important to understand the factors that go into a credit score calculation


These factors include: 

  • Timely bill payment
  • The amount of debt you have
  • The amount of time you’ve had credit
  • New credit inquiries
  • The types of credit you have

Installment Loans

Student loans don’t have their own category in a credit score calculation. Whether they’re private or federal, they’re considered installment loans (car loans and mortgages are also installment loans). This means the starting balance of the loan is repaid over a fixed number of payments. Installment loans don’t affect your credit score on their own because they’re not considered revolving credit, which is what credit cards are. 

Payment History

Making your payments on time has the largest impact on credit score calculations. Even just one late payment can affect your credit score. The COVID-19 student loan pause suspended student loan payments and eligible loans had a 0% interest rate. Non-payment of loans eligible for this pause did not negatively impact credit scores, nor were these eligible loans considered to be in default. However, if you continued making payments on eligible loans, you may see improvements to your credit score.


Student loan default, deferment and forbearance can impact your credit score, and it’s important to know the difference between them. 

  • Default: If you go more than 270 days without a payment, your loan is considered to be in default, which has a large impact on your credit score along with legal consequences. 
  • Deferment: This is a temporary postponement of student loan payments. A subsidized loan in deferment does not accrue interest to your balance, but an unsubsidized loan does accrue interest. 
  • Forbearance: This is a temporary postponement of your student loan payments, but for a limited amount of time. A loan in forbearance does accrue interest to your balance, whether it is subsidized or unsubsidized. 

If you’re struggling to make your student loan payments, immediately talk with your student loan servicer. They may be able to help you switch to a different repayment plan. 

Credit Mix

Having different types of credit is good for your credit score. This can include student loans, auto loans, credit cards and a mortgage. Credit mix factors into a small percentage of your credit score, but it is still enough to give your score a bit of a boost.

Credit History

How long you’ve had credit moderately impacts your score. Student loans generally have longer repayment periods, which can help you build a credit history. However, don’t avoid paying off student loans just to have a better length of credit history — if you have the ability to pay off your student loans, then do so.


How to Pay Off Student Loan Debt

Having student loan debt can feel overwhelming. However, it’s important to remember that you’re not alone. Approximately 1 out of every 5 people in the U.S. have a student loan, and 7% of people with federal student loan debt owe more than $100,000. 


There are some ways to lower the amount of debt you have, including choosing a reasonable repayment plan, paying more than you owe each month, and refinancing or consolidating your student loans. Many student loan servicers offer multiple repayment plans based on your income, timeline and other criteria. 


Make sure you’re choosing a repayment plan you can follow. Although a larger payment each month means you pay down the balance sooner, if you’re struggling to pay for other bills, utilities or groceries, you may want to explore other repayment plans for financial relief. Your student loan servicer is a great resource to help you explore your repayment options and can help you find a balance between affording your other bills and repaying your debts. 


If you have multiple loans with high interest rates, refinancing or consolidating your loans may help save you money on interest each month and over the course of the loan. However, be careful with refinancing and consolidating. If you switch a federal loan to a private servicer, you will lose any federal student loan benefits such as public service loan forgiveness and federal loan repayment options.  


Avoid Common Financial Pitfalls

Student loans can impact your credit score in a variety of ways, both positive and negative. Make sure you’re prepared and staying on your path of financial wellness with these tips for college graduates on avoiding common financial pitfalls.