Do student loans affect your credit score?

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If you have federal student loans, you may not have to make any payments until May 1, 2022, thanks to the current federal student loan payment freeze.

But just because you’re not making payments now doesn’t mean your student loans don’t matter. Your student loans can have a big impact on your credit score and your financial life. Whether that impact is positive or negative will depend on what you do once payments resume.

Although student loans are commonly thought of as “good debt” (debt that can potentially improve your life in significant, long-term ways), they are still debt and can affect your financial future.

“Student loans can help or hurt your credit score, just like any other type of credit obligation that shows up on your credit report,” says Michelle Lambright Black, credit expert and founder of “For example, on-time student loan payments could strengthen your credit score over time. Meanwhile, late payments could lead to a drop in credit score,” she adds.

However, as long as you make payments on time, student loans are more likely to help your credit score than hurt it. Here’s what you need to know about how student loans affect your credit score and how you can use them to your advantage.

How do student loans affect your credit score?

Your credit score is generally calculated using five main factors: payment history, credit utilization (balances due divided by total available credit), the length of your credit history, your credit mix, and recent strong credit inquiries.

Your student loans affect your credit score primarily through your payment history, according to Mark Kantrowitz, a higher education expert and author of “How to Apply for More Financial Aid for College.” Payment history makes up the bulk of your credit score, so late or missing student loan payments can have a pretty big impact on your credit score.

“Late payments can drop your credit score 50 to 100 points,” Kantrowitz says. “A default on your student loans, which occurs after 120 days delinquency on private student loans and 270 to 360 days delinquency on federal student loans, can have a greater impact on your credit score.”

Because student loans are considered installment loans, credit utilization doesn’t matter as much as it does with revolving accounts like credit cards, Kantrowitz explains. However, having an installment loan in your credit mix, especially one that helps establish a longer credit history, could be helpful for your overall credit score.

Both Black and Kantrowitz say private and federal loans affect your credit in similar ways. “From a credit score perspective, there is no difference between a federal student loan and a private one,” says Black.

It’s important to note that your credit score isn’t the only part of your financial profile that affects student loans, Kantrowitz says. They can also affect your debt-to-income ratio, making it harder for you to qualify for a mortgage. However, recent changes in mortgage underwriting rules for certain government-backed loans mean borrowers on an income-driven repayment plan may have an easier time qualifying for a mortgage than before, says Kantrowitz.

Will my credit score get worse if I miss a monthly payment?

Because of the importance of payment history, each missed student loan payment (private or federal) can have a significant negative impact on your credit score.

However, Black notes, your private lender or federal trustee has to report you as “delinquent” before the action affects your credit. “With private lenders, that could happen when you hit the 30-day mark past due,” Black explains. “Federal student loan servicers, by comparison, typically don’t report your delinquency to the credit bureaus until you’re 90 days past due.”

However, even if you don’t report it, you could still face negative consequences from your lender or servicer in the form of late fees or penalties. These can be added to your loan balance and accrue more interest, causing your debt to grow. That’s why it’s important to always make your payments on time, if possible.

Late payments can stay on your credit report for up to two years, Kantrowitz says, even after you resume payments and bring your account current. “However, recent activity has a greater impact on your credit score than older activity,” he adds. “Therefore, there should be an improvement in your credit score even within a few months of updating the account and resuming payments.”

pro tip

Reduce the chance of missing a loan payment by signing up for AutoPay. Many lenders even offer an interest rate reduction for signing up for AutoPay.

Can student loans help improve your credit score?

While missing student loan payments can lower your credit score, consistently paying on time helps build a positive payment history, says Black.

Adding another account to your credit report can also help if you have a small credit file, adds Black. Having a student loan could improve your credit mix, which accounts for 10% of your FICO score calculation. A good credit mix could boost your credit score and show lenders that you can handle multiple types of credit.

And, as time goes on and your student loan gets “old,” the average age of your credit accounts increases, which can also give you a little boost in your credit score.

Of course, all of this depends on you regularly making on-time payments. Kantrowitz recommends setting up AutoPay with your private lender or federal loan servicer. That way, you won’t have to try to remember to make your payments each month, and you’ll reduce the chances that you’ll end up paying late or, worse, not paying at all.

“Not only are you less likely to miss a payment, but many lenders offer an interest rate reduction when you sign up for AutoPay,” Kantrowitz says. “Usually you see a reduction of 0.25 or 0.50 percentage points as an incentive.”

Do student loans affect credit scores during the student loan freeze?

As part of the federal government’s pandemic relief measures, federal student loan payments have been frozen. During this time, certain loans do not require payment and do not accrue interest. On top of that, collections on delinquent loans have been stopped. The latest extension of this payment freeze expires on May 1, 2022. Although there may be additional extensions in the future, you should not count on them when planning ahead.

During the freeze, you won’t be penalized for missing payments, which means your credit score won’t be affected. However, if your loan was in default before the freeze, it will still show up on your credit report and affect your credit score, even if collection attempts have stopped.

It is important to note that not all loans are affected by this freeze. Private student loans are not affected. In addition, non-defaulting FFEL loans that are not held by the Department of Education are not eligible.

Whether you have private or federal student loans, it’s important to address payment issues as soon as possible. Borrowers experiencing financial difficulties should contact their loan servicer to ask about their options instead of letting their loans default, Kantrowitz says. These options may include deferment and forbearance, partial forbearance, reduced interest-only payments, and alternative payment plans.

Ultimately, the best way to keep your credit score healthy and your debt in check is to stay on top of your student loan payments, whether that means paying the amount due on time each month or contacting your lender. as soon as possible and an alternative arrangement if you cannot pay.

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