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How Student Loans Affect Your Credit Score

When we say college, what comes to mind? Brick buildings? Enlightening classroom discussion? A lot of money? The last one pretty much sums it up. 

Higher education is expensive. Like, it 100% doesn’t have to be (we’re looking at Germany having free tuition) but unfortunately for those of us in the USA, getting any kind of education past high school costs an arm and a leg and the worst of all: debt.

So, you probably had to take out a student loan or two or three. Most college students don’t have much of a choice. 

What are you going to do? Not go to school even though you want to?

For so many, student loans are just a fact of life. And yes, they do impact your credit score—for better or worse, which is of course entirely up to you. 

Let’s break this down. 

What Even Is a Student Loan?

Student loans are large sums of money that you borrow from either a private bank or the federal government to help pay for higher education and all of the expenses that come with it like your new computer, dorm room, and the takeout you order when you’re pulling an all-nighter.

There are two types of student loans: federal loans and private student loans. 

Federal student loans are borrowed from the federal government of the United States, you know those people in Washington D.C. 

Private Student Loans are borrowed from any lender that is not the federal government of the United States, so think your local credit union. 

What Do Student Loans Have to Do with my Credit Score?

Well, it’s actually quite simple. Student loans are loans so they do in fact affect your credit score. 

What Type of Credit are Student Loans?

Student loans are installment loans which is a loan for a set amount of money that has a standard, regular repayment schedule. 

On one hand, having student loans actually helps your credit score because it diversifies your credit mix (the different types of credit accounts you have: a car loan, credit card, mortgage, etc.) which lenders and the credit bureaus like to see. 

But of course, don’t take out a loan you don’t need just for the sake of your credit mix.

What If I Can’t Pay on Time?

On the other hand, if you don’t pay your student loan payments back on that regular schedule you agreed to, then they can hurt your credit score because they mess with your payment history. 

Your payment history is a record of how you handle paying back your debts which is why it’s important to make your payments on time and reach out to your lender if money gets tight and you need to change your payment plan or payment amount. 

Your student loans are 100% part of your credit history, so make sure you do everything you can to make your monthly payments on time. 

Late payments are reported to the credit bureaus differently depending on the type of student loan you have (and they will drop your credit score). 

Late payments on your federal student loans can be/are reported to the credit bureaus after 90 days. Late payments on your private student loans can be/are reported to the credit bureaus after 30 days. Lenders can of course charge you a late fee immediately (and who wants that!) 

What’s this Default and Delinquency Thing All About?

When your late payment is reported by your lender, it’s called a delinquency which stays on  your credit report for seven years. That’s a long time! 

Also, the longer your payment is late the more it will hurt your credit. Your federal student loan will go into default if you don’t make a payment for 270 days and that’s really bad. You’ll become ineligible for future federal student aid and could be looking at serious legal issues. Going into default on a loan is worse for your credit than a 30- or 90-day delinquency (late payment), so you 100% want to avoid that if at all possible. 

If you’re really having trouble paying, consider asking your lender to put your loans in deferment or sign up for an income-based repayment plan. But ignoring your student loans and pretending they don’t exist really isn’t an option—at least it’s not a good one. 

Does Paying Off Student Loans Help My Credit Score? 

This is weird but right after you pay off your student loans, your credit might take a dip. This is because you’re essentially closing a line of credit when you pay off a student loan and if you don’t have other installment loans, then you’re losing an installment loan from your credit mix. 

But! Paying off your student loans early is amazing for your overall financial health and your credit score will recover (especially if there’s nothing else negative on it). Paying off your student loans frees up your money to keep crushing your financial goals by investing more, buying a home, giving more to mutual aid, or by just having more money to go get your nails done guilt-free. 

Where Do I Go From Here?

If you have student loan debt and are also trying to build credit, there are a few things you can do. 

Make Those Payments

Make extra payments on your student loans each month! Split your monthly payment into two and pay bi-weekly. This will likely be easier on your pockets and offers a boost to your credit score because you’re paying on time and more payments create a longer payment/credit history. 

Get to Budgeting

Use or update your monthly budget. Adulting is hard, okay?! You’re probably out here paying back student loans, paying rent, buying food, and trying to have some fun. You need to know where your money is coming from and what it’s going to. Make sure you use or update your budget as your life circumstances change so that you always have a handle on your finances. 

Try Out Extra

Use Extra! It’s totally possible to have student loan debt and have a high credit score. You just have to manage your payments and money well. Extra can help. We’re the first debit card that helps you build credit responsibly—like without going into debt and spending beyond your means. 

We know student loan debt can feel super overwhelming. But with a little planning, you can manage and hopefully pay that money back quickly while still building credit and doing the whole adulting thing. We believe in you!  

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