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Student loans can affect your credit score in both positive and negative ways. Depending on how you manage your loans, they can even help you secure lower interest rates and more favorable repayment terms on other forms of credit later on.

Here’s how student loans affect your credit score:

  1. On-time payments: Helps your credit
  2. Late payments: Hurts your credit
  3. Diversified credit mix: Helps your credit
  4. Taking out new loans: Hurts your credit
  5. Length of credit history: Helps your credit
  6. Defaulting on your loans: Hurts your credit

1. On-time payments

Helps your credit

Your payment history accounts for 35% of your credit score and it’s the single biggest factor that determines your score.

If you have student loans, keeping up with your monthly payments — even if you can only afford to pay the minimum required — can help improve your payment history and boost your credit score.

2. Late payments

Hurts your credit

Because your payment history is so important, missing a student loan payment is a big deal. According to Equifax, a 30-day delinquency could cause as much as a 90- to 110-point drop on a FICO score of 780 who has never missed a payment before.

To prevent missed payments, sign up for automatic withdrawals from your bank account each month to pay your bills. That way, the money is automatically pulled from your account on your due date. As an added bonus, many lenders offer interest rate discounts when you sign up for autopay, which helps you save money.

3. Diversified credit mix

Helps your credit

Your credit mix — the different types of credit you have, including credit cards, car loans, and student loans — affects 10% of your credit score.

Having student loans helps diversify your credit mix, which can give you a modest increase to your credit score.

4. Taking out new loans

Hurts your credit

New credit determines 10% of your credit score. When you take out multiple student loans, lenders see you as a greater risk. That’s especially true if you don’t have a long credit history or if your student loans are the only forms of credit you have.

Applying for new loans can cause your score to dip, and each credit inquiry can affect your credit. According to myFICO, one additional credit inquiry will take less than five points off your credit score.

5. Length of credit history

Helps your credit

Having a longer credit history can positively impact your credit score, since your length of your credit history affects 15% of your score.

With student loans, you’ll likely be repaying them for 10 years or longer. If you keep up with your payments, having those student loans can improve your credit history and show lenders that you’re a reliable borrower.

6. Defaulting on your loans

Hurts your credit

If you default on your student loans, you can seriously hurt your credit score. For federal student loans, you enter into default if you miss your payments for 270 days or more. With private student loans, you’re in default if you miss your payments for just three months.

If that happens, the lender will report the default to the three major credit bureaus, lowering your credit score. It can even impact your ability to qualify for other types of credit, such as a mortgage or car loan.

A default will stay on your credit report for seven years, even if you pay off the loans in full. Having that notification on your credit report will make lenders nervous about working with you, so it can affect you for years.

Tip: If you’re struggling with student loan debt, one option to consider is student loan refinancing. When you refinance, you’ll be able to secure a lower interest rate or even reduce your monthly payment, helping you stay on track.

Check Out: The Best Student Loan Refinancing Companies

Find out if refinancing is right for you

  • Compare actual rates, not ballpark estimates – Unlock rates from multiple lenders with no impact on your credit score
  • Won’t impact credit score – Checking rates on Credible takes about 2 minutes and won’t impact your credit score
  • Data privacy – We don’t sell your information, so you won’t get calls or emails from multiple lenders

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Managing your student loans

If you have student loans, it’s important to know how they affect your credit score. Having a solid score can have a big impact on your financial life, so understanding the influence your student loans have is essential to building your score.

About the author
Kat Tretina
Kat Tretina

Kat Tretina is an authority on student loans and a contributor to Credible. Her work has appeared in publications like the Huffington Post, Money Magazine, MarketWatch, Business Insider, and more.

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