Table of Contents
- How Is My Credit Score Calculated?
- What Student Loan Factors Affect My Credit Score?
- How Does a Late Student Loan Payment Affect My Credit Score?
- Does It Hurt to Pay Off Student Loans Quickly?
- What Happens When You’re Delinquent or Default on a Student Loan
- Will Rate Shopping Different Student Loan Lenders Hurt My Credit?
- Will Refinancing Student Loans Help My Credit?
- Do I Need a Good Credit Score to Take Out a Student Loan?
- Which Credit Scores Do Private Lenders Use?
- FAQ
Student loans don’t just help you pay for your college education. They also allow you to build a credit history, which can be useful when it comes time to get a mortgage or take out a car loan.
The key, though, is to make regular on-time payments – or you may wind up with the sort of credit history that negatively impacts your ability to borrow money in the future.
Here’s a look at how student loans affect credit score.
Key Points
• Student loans may help borrowers build credit history, which can be beneficial when applying for future loans like mortgages or car loans, provided payments are regularly made on time.
• Consistent on-time student loan payments may positively impact credit scores over time, while late or missed payments will likely cause scores to drop.
• Payments more than 90 days delinquent are reported to the three major credit bureaus and may remain on credit reports for up to seven years.
• After 270 days of missed federal student loan payments, the loan status changes to default, requiring immediate full repayment plus accrued interest, fines, and penalties.
• Paying off student loans early may cause a small, temporary credit score dip by reducing credit mix and payment history, though the impact is typically minor and short-lived.
How Is My Credit Score Calculated?
The relationship between student loans and credit score starts with how credit scores are calculated. There are several types of credit scores, but FICO scores are the most commonly used by top lenders.
A borrower’s FICO score is calculated using five categories of data found in their credit reports, with each category weighted differently.
| Category | Weight in Scoring |
|---|---|
| Payment History | 35% |
| Amounts Owed | 30% |
| Length of Credit History | 15% |
| New Credit | 10% |
| Credit Mix | 10% |
Based on these calculations, there are a few ways a borrower can potentially build good credit and positively impact a credit score. Paying bills on time is a big one, since payment history is the most heavily weighted factor. Paying down existing debt and keeping credit card balances low may also have a significant effect.
Less impactful but also important strategies include diversifying the types of credit an individual has, avoiding opening too many new accounts at once, and keeping accounts open to lengthen the average age of their credit history.
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What Student Loan Factors Affect My Credit Score?
How student loans affect a credit score generally comes down to a few different factors.
One of the biggest ways your student loans can affect your credit is whether or not you consistently make your payments on time. If you’re a responsible borrower who continually makes on-time student loan payments, you may see positive shifts in your credit score over time.
But if you fail to repay a loan or continually make late payments, your credit score will likely see a dip. And if you default on your student loan, your credit score could drop significantly. The lender might also send your account to a collections agency, and you may have a more difficult time securing credit in the future.
How Does a Late Student Loan Payment Affect My Credit Score?
Making payments on time is important, but what you might not realize is exactly how damaging late payments can be. It only takes one report of a 30-days past-due payment to negatively impact your score. Once a late payment is reported to the credit bureaus, it may remain on your credit report for up to seven years.
To help ensure your payments are on time, you might want to set up an automatic payment plan. Most lenders will even give you a small discount on your interest rate for enrolling in autopay. If you know you can’t make a payment on time, talk to your lender or loan servicer right away. The Education Department (for federal student loans) and even some private lenders offer loan deferment or forbearance. These options typically allow a borrower to temporarily suspend payments, which may minimize the impact on their credit score.
Does It Hurt to Pay Off Student Loans Quickly?
Paying off student loans quickly could impact your credit score. You might even see a small, temporary dip in your credit score right after paying off a student loan. There are several reasons for this. If student loans are your primary source of open credit, closing those accounts means you’re no longer building payment history.
Prematurely paying off a loan can also change a borrower’s credit mix or credit utilization.
But credit score is just one factor to consider when deciding how quickly to pay off a student loan. You may want to think about how much extra interest you’d pay by leaving the account open. Carrying a high loan balance could also make it harder to qualify for new loans, which is something to keep in mind when it comes time to buy a home or car.
What Happens When You’re Delinquent or Default on a Student Loan
Student loans may impact credit scores in a variety of ways, but the worst thing you can do is ignore your monthly loan payment. If you’re even one day late with a payment, you’ll be considered delinquent and may be charged a penalty.
Once a missed payment is more than 90 days delinquent, your loan servicer will report it to the three major national credit bureaus. This could lower your credit score and hurt your ability to get a new credit card or qualify for a car loan or mortgage.
After 270 days of a missed federal student loan payment, your status changes to default and your student loans are due in full immediately along with any accrued interest, fines, and penalties.
Will Rate Shopping Different Student Loan Lenders Hurt My Credit?
When you’re shopping around for the best interest rate possible on a private student loan, lenders may pull your credit file. This is called a hard credit inquiry, and each one might temporarily knock a few points off your credit score.
To help prevent this, try to shop for rates, submit loan applications, and finalize your loan within 14 to 45 days. Researching rates and getting quotes ahead of time can give you a good idea of whether you’ll qualify for a loan before you formally apply.
You may also want to get prequalified with lenders to get a sense of the interest rate you would receive without a “hard” credit pull, which might affect your score. You cannot get a loan without an eventual hard inquiry, but getting prequalified may allow you to compare interest rates without impacting your credit score.
Will Refinancing Student Loans Help My Credit?
Because refinancing involves taking out a new private loan with new terms to pay off existing debt, refinancing student loans affects your credit — both positively and negatively.
In the short-term, student loan refinancing will involve a hard credit inquiry and may cause a temporary ding to your credit. As long as you keep your loan shopping to a short period, multiple inquiries will generally be treated as one, and should have a minimal impact on your score.
The credit score needed to refinance student loans is typically at least 650, and scores of 720 or higher are generally required to qualify for the lowest interest rates.
In the long-run, refinancing student loans at a lower interest rate may have an indirect positive impact on your credit. For example, if refinancing lowers the amount you pay each month, you may be more likely to make payments on time. You may also pay off your loans faster, which can help you reduce your overall debt and may positively impact your score. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)
If you refinance federal loans with a private lender — in effect, turning your federal loans into a private loan — credit bureaus don’t view these two types of loans any differently. However, when you refinance your federal loans, you will lose certain federal protections, such as income-driven repayment plans, deferment or forbearance, and loan forgiveness programs.
Recommended: How Can Consolidating Student Loans Affect Your Credit?
Do I Need a Good Credit Score to Take Out a Student Loan?
Your credit score may be a factor when you’re applying for a student loan. It all depends on the type of loan you’re planning to take out. Most federal loans don’t have a minimum credit requirement, which is why nearly every borrower gets the same interest rate regardless of their financial profile. However, federal PLUS loans for parents require that borrowers do not have an adverse credit history.
Credit scores are typically more of a factor with private student loans. Lenders often consider your score when determining student loan approval and interest rate. In general, the better your score, the better your rate will be.
Which Credit Scores Do Private Lenders Use?
When considering your student loan application, most private lenders look at your FICO® score. This score, which ranges from 300 to 850, helps lenders determine whether to extend credit and at what interest rate.
Because FICO is used widely throughout the lending industry, including by mortgage lenders and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.
The Takeaway
Student loans may help borrowers establish a solid credit history, which could ease the way for future borrowing opportunities and attractive interest rates. The key is to pay what you owe on time, every time.
Paying a loan off early or shopping around for rates might cause a small, temporary dip in credit scores. Being late with a payment — or missing payments — may lower your credit score and hurt your ability to qualify for another loan, among other consequences.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
Do student loans help build credit?
Student loans may be an opportunity for borrowers to help build credit and establish a solid credit history, which may help when it’s time to get a mortgage or take out a car loan. Making consistent on-time payments is key.
How can I improve my credit score if I have student loans?
Payment history is the biggest factor in your overall credit score, so making consistent, on-time payments on your student loans may positively impact your credit.
How is my credit score determined?
Your credit score is calculated using five different categories of data. These include payment history, amounts owed, length of credit history, new credit, and credit mix.
Do student loans affect my ability to get a mortgage or auto loan?
Yes, student loans may impact your ability to get a mortgage or car loan. Making student loan payments on time consistently may help build your credit and create a credit history, which could be helpful for getting a mortgage or car loan. Conversely, failing to make on time payments can negatively impact your credit, as could carrying a high loan balance, which could make it more difficult to qualify for a mortgage or auto loan.
Does having a cosigner affect how student loans impact my credit score?
Having a creditworthy cosigner on a student loan may help you qualify for a lower interest rate if your own credit is poor. If you consistently make on time payments on your loans, this may help you build credit over time.
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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