Do Student Loans Impact Your Credit Score?

Student loans impact your financial life in many ways, and they can help or hurt your credit score. Just one missed payment can lower your score and leave a negative mark on your credit report for as long as seven years. According to the Consumer Financial Protection Bureau, about 1 in 3 borrowers has missed payments. Fortunately, making timely payments has the opposite effect.

Here's how student loans can affect your credit, along with steps you can take to build a healthy credit score.

Compare student loan refinance rates

Do student loans affect your credit score?

While student loans can affect your credit score, simply having student loan debt isn’t necessarily bad for your credit. What matters most is how you manage the loan.

Making payments on time can help you build a positive payment history and strengthen your credit score over time. On the other hand, missed or late payments can significantly damage your credit score.

Taking out a student loan can also affect your credit in smaller ways. Private student loan applications typically require a hard credit check, which can temporarily lower your score, usually by fewer than five points. Student loans can also contribute to your credit mix and length of credit history, both of which can help strengthen your credit score over time. 

How student loans help your credit score

Student loans can help you build credit when you manage them responsibly. Here are a few ways they can help boost your credit score:

• Build a positive payment history: Payment history accounts for 35% of your FICO score, so it's the biggest factor in determining your credit score. Consistently making your student loan payments on time can strengthen your payment history and show lenders that you can manage debt responsibly.
• Add to your credit mix: Student loans are installment loans, which can add variety to your credit profile if you also have revolving accounts, such as credit cards. Credit mix accounts for 10% of your FICO score.
• Increase the length of your credit history: Student loans often stay on your credit report for years, which can help establish a longer credit history. Even after you pay off student loans, an account in good standing may remain on your credit report and continue contributing to your credit history.

How student loans hurt your credit score

The biggest credit risk with student loans is falling behind on repayment, but there are a few other ways your loans can affect your score: 

• Negatively affect your payment history: A late payment will typically show up on your credit report once it's 30 days past due for private student loans and 90 days for federal student loans. Just one late payment can cause your credit score to drop by 100 points or more, so the impact is significant.
• Cause more serious damage if you default: If you are 270 days past due on your federal student loan payments or 120 days past due on private student loans, your loan is considered in default. Defaulting on your loans not only hurts your credit score but can also lead to wage garnishment and having your tax refunds withheld. 
• Temporarily lower your score with a hard credit inquiry: Applying for a private student loan typically requires a hard credit check, which can temporarily lower your score by less than 5 points. Most federal student loans don't require a credit check, with the exception of Direct PLUS Loans. 
• Cause a small dip when you pay off the loan: Paying off your student loans in full will benefit you in the long run, but it can initially hurt your credit score. If your student loans were your only installment, paying them off early can lower your credit mix. Once the closed account is removed from your credit report, it can reduce your average account age, which makes up 15% of your credit score.

Tips to improve your credit score

Effectively managing your student loans is the best way to improve your credit score and achieve long-term financial stability. Here are some strategies you can implement:

• Set up autopay: When you sign up for autopay, your student loan payments will be automatically taken out of your bank account each month, so you never miss a payment. In many cases, your loan servicer will also reduce your interest rate by 0.25 percentage points for signing up for autopay.
• Keep old loans on your credit report: Once you pay off a loan, don't request to have it removed from your credit report immediately, since this can negatively impact your credit score. Paid off loans can remain on your credit report for up to 10 years, which will positively impact your credit score.
• Consider refinancing: Refinancing your student loans can lower your interest rate and help you pay off your debt faster, which will benefit your credit score in the long run. However, be careful about refinancing federal student loans because you'll lose out on federal benefits like income-driven repayment and potential loan forgiveness.