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Student Loans and Your Credit Score: What You Need To Know

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In a Nutshell

Payments on your student loans will be recorded in your credit history and ultimately impact your credit score. Making payments on time will boost your credit score, and missing payments or defaulting on your loans will hurt your credit score. Paying your student loans is a great way for recent grads to start to learn about and build their credit. Maintaining a good credit score will help you get good interest rates on credit cards, mortgages, and car loans.

Written by Attorney Thomas J. Pearson
Updated August 23, 2023

Yes, Student Loans Affect Your Credit Score

Yes, your student loans will affect your credit score. How much your student loans affect your credit score depends on a few different factors, including: 

  • Which scoring model the lender is using

  • Your payment history

  • Your total student loan balance

A scoring model refers to the software a potential lender uses to translate the information from your credit report into a numeric score. We’ll discuss calculating credit scores in more detail later.

Your payment history is exactly what it sounds like: your record of paying off debt and whether you make on-time payments or not. A good payment history is critical to having a good credit score. It shows lenders that when you borrow money, you pay your loans back on time. 

Your loan balance is the total dollar amount that you owe. Lenders use your loan balance to calculate your debt-to-income ratio. A high student loan balance can hurt your debt-to-income ratio, especially if your income is low. This may not affect your credit score directly, but it’s something lenders consider when deciding whether to give you a loan or credit card.

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How Do Student Loan Payments Affect Your Credit Score?

Making student loan payments regularly and on time will have a positive effect on your credit score. This is a great way to build your credit, especially if you haven’t had loans or credit cards before, like many college students. The same principle applies to personal loans, car loans, credit cards, and other lines of credit.

Conversely, if you don’t make your required monthly payments on time and become delinquent or default on your student loans, you’ll hurt your credit score. Missing multiple payments, paying late, or defaulting on your loans entirely can hurt your credit score significantly.

To Keep Up With Student Loan Payments, Pick the Right Repayment Plan!

Most people don’t miss student loan payments or make late payments because they want to. It usually happens because of financial distress. To avoid the negative consequences of missing student loan payments, make sure you’re on an affordable loan repayment plan. 

Federal student loans come with many benefits. 

Unfortunately, private lenders don’t often offer equivalent help for private student loans. But each lender sets its own repayment terms. Contact your lender directly if you’re struggling to make your private student loan payments. 

If you have a mix of private and federal loans, take full advantage of the repayment options for your federal loans to get a low or $0 monthly payment. Then tackle your private debt head-on.

Should You Refinance Your Student Loans To Improve Your Credit Score?

Federal student loan borrowers can also refinance their loans with a private lender. When you refinance a loan, you’re essentially getting a new loan to pay off the old loan. Then, you make payments to the new private lender. Sometimes this is a good option if the private lender is offering a lower interest rate than the one you’re currently paying. 

However, student loan refinancing is a serious decision, especially if you’re refinancing federal student loans into private loans. Federal student loans have many benefits that private student loans don’t.

For many people, especially those who don’t have a high income, the income-based repayment and forgiveness options available for federal student loans are incredibly helpful. You will lose access to these repayment programs if you refinance your federal student loan with a private lender.

Can Your Credit Score Affect Your Student Loan Eligibility?

Most federal student loans (those issued by the U.S. Department of Education) are issued without a credit check. This means your eligibility for the majority of federal loans is not affected by your credit history or credit score. Generally speaking, federal loans are issued based on borrower need (as determined by the information in your FAFSA) and school costs. 

One exception is Direct PLUS Loans, which do require a check credit. These loans are less common than Direct Loans, which don’t require a credit check.

 Private student loans are different. Private lenders will consider your creditworthiness in their loan application process. 

How a Cosigner Can Help You Get Student Loans and Maintain a Good Credit Score

Sometimes, private student loan companies approve student loans for borrowers with low credit scores. Usually, lenders set higher interest rates for borrowers with lower credit scores. This means that private loans are more expensive for borrowers with complicated credit histories than they are for those with good credit histories. 

If you don’t have a good credit score, getting someone to cosign the loan may help get you access to private loans or lower interest rates. This comes with some risks for the cosigner though.

When applying for private student loans, some borrowers may need to have a cosigner on their loan(s) to be approved. Sometimes, having a cosigner will help borrowers with lower credit scores get approved for loans and possibly get better interest rates. 

The cosigner is responsible for the entire amount of student loan debt if the borrower does not pay, so it’s important that both the borrower and cosigner understand this reality before signing onto a loan.

How Is Your Credit Score Calculated?

A credit score is like a grade for a borrower’s credit history. Your credit history includes almost everything related to your record of borrowing money and paying it back. 

Five main factors are used to calculate credit scores:

  • Payment history

  • Credit utilization ratio (amount of debt owed vs. total line of credit)

  • Length of credit accounts (older accounts have more weight than new credit accounts)

  • Diversity of loan types (credit mix)

  • Number of recent hard inquiries on a borrower’s credit history

Different types of debt impact credit history in different ways. Loan diversity, or credit mix, simply means that a borrower has different types of debt. It can be good to have different types of credit accounts because it shows loan servicers that you’re responsible when paying down different types of debt.

Why Do You Have More Than One Credit Score?

All borrowers have more than one credit score because there are three credit bureaus that each calculate credit scores in a different way. The three credit bureaus are Equifax, Experian, and TransUnion. 

On top of those three credit scores, borrowers also have a FICO score. A FICO score uses data from all three credit bureaus for its score calculation. FICO is typically used by lenders for bigger loan applications like home mortgages. 

There are multiple FICO scoring models, so sometimes even your FICO scores will differ. Each lender chooses which FICO score model to use to calculate your score. 

Some lenders use VantageScore, which is a FICO competitor.

How Do You Check Your Credit History?

You can get your credit report for free from all three major credit bureaus once a year. Your credit report shows your relevant credit history. It won’t show your credit score, but you can usually see your credit score through bank or credit card accounts. 

It’s important to look at your credit history regularly to make sure that all the information is accurate. If there is negative information that’s been inaccurately reported, this can hurt your credit score. 

When looking over your credit report, be sure to check that your student loan information has been reported accurately. Dispute it if it hasn’t. Credit bureaus are required to correct false information for free, but you must notify the bureau of the error. 

To make sure that your credit history is accurate, check your credit report against information from your past bank statements, credit card statements, and student loan statements. (You can also find this information online through your account or with an NSLDS report.) 

Written By:

Attorney Thomas J. Pearson


Thomas “TJ” Pearson is a Staff Attorney at the Metropolitan St. Louis Equal Housing and Opportunity Council (EHOC). He represents tenants in eviction cases and related landlord-tenant disputes. TJ is from Belleville, Illinois and currently lives in St. Louis, Missouri. He receive... read more about Attorney Thomas J. Pearson

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