How Do Student Loans Affect Credit Score? (2024)

If you’ve borrowed money to pay for your college education, you may wonder how student loans affect your credit score. After all, credit is an important part of your life as a consumer. It affects how likely you are to be approved for everything from applying for a credit card to financing a new car to getting a mortgage for your first home. Lenders use your credit score to help determine whether they’ll approve you for a loan and under what terms.

Here's information on the formula behind your credit score, how student loans can affect your credit, and what you can do to help boost your score.

A common misconception is that there’s only one type of credit score. Actually, there are hundreds of different types of credit scoring models, but the best known one is probably theFICO®score.

A FICO credit score ranges from 300 to 850, with 300 considered a poor score and 850 excellent. A credit score consists of five categories or sections. Each category contributes a certain percentage to your score:

Student loans are a type of installment loan, similar to a car loan, personal loan, or mortgage. They are part of yourcredit report, and can impact your payment history, length of your credit history, and credit mix. If you pay on time, you can help your score. Be late or skip a payment altogether, and your score may take a hit.

Being delinquent or defaulting on your student loans can negatively impact your credit. When you skip a payment, you're immediately considered delinquent. You remain delinquent until you pay the amount past due, or arrange fordeferment or forbearance, two ways to temporarily stop making or reduce your federal student loan payments.

With federal students loans, most servicers usually wait 90 days before reporting a late payment to all three major credit bureaus — TransUnion^®, Experian^®, and Equifax^®. However, you may be subject to a late fee immediately after missing a payment. Private lenders will report loans more than 30 days past due to the bureaus.

Whether — and when — you cross over from delinquency to default largely depends on the type of loan.

For instance, loans under either the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program (FFEL) will be in default after 270 days, or roughly nine months. If you have a federal Perkins Loan, the period of time until you default depends on the lender.

There are many consequences of defaulting on a student loan, including the possibility of wages being garnished, a collection agency getting involved, and no more access to federal aid until the debt has been settled or a repayment plan has been approved.

Theperiod of defaultfor private student loans is typically 120 days, but may depend on the lender and your agreement. Private loans may be subject to a statute of limitations, which determines the amount of time a lender has to collect the amount owed on a loan and varies by state. No matter the type of student loan, when youdefault, it will stay on your credit report for up to seven years.

If you're late or miss a single payment, it may not affect yourcredit score, depending on the loan type. But miss a bunch of payments, and your credit could take a blow. As your payment history makes up over one-third of your credit score, you’ll want to stay on top of your payments.

To avoid being late, missing payments, or defaulting, take a look at yourrepayment plan. Make sure it's one that’s a good fit for your situation, and that you can keep up with the payments. The good news is that you can change yourrepayment planfor federal loans at any time, at no cost. You'll just need to reach out to your loan servicer to discuss your repayment plan options to determine which one works best for you.

If you are having trouble making your payments, you should always reach out to your loan servicer to find out what your options are.

Student loans can indeed bolster your credit. Of course, for that to happen, you'll have to keep up with your monthly payments. Otherwise, your score could drop. Don't have a lot of different types of credit? In that case, having student loans show up on your report could add to your mix, which also can provide a credit boost.

And if you take out student loans as a young adult, it can certainly increase the amount of time you have had credit, which boosts your score. When you're just starting out and don't have a lot of open credit lines, your student loans could carry more weight toward the average age portion of your score.

Let's say you get a student loan during your first year of college. When you graduate, that account will have been part of your account for several years. In turn, it could help boost the average age of your credit history. On the flip side, if you take out new student debt every term or every school year, that could lower the average age of your credit.

When yourefinanceyour student loans, a lender will pay off your debt and issue a new private student loan. This new loan may come with a lower interest rate or a different term, or length of time you have to pay the loan. Over time, it could save you quite a bit of interest. It could also lower your monthly payment amount while lengthening your repayment term. However, to qualify to refinance your student loans, you'll need solid credit.

While refinancing can save you money, it can also pose downsides. When you refinance your federal loans to a private one¹, you can no longer tap any of the benefits that come with the federal program, such as income-driven repayment, loan forgiveness, or forbearance or deferment. You also can't switch back from a private loan to a federal one.

Another thing to mull over is the age of your student debt. Depending on when you first borrowed the money for college, it might not make financial sense to try to refinance your loans.

Whatever your circ*mstances, you should keep in mind the impact of your credit score when assessing your student loans. Even just making on-time payments represents an important first step in building — and maintaining — a good credit score.