Student loans affect your credit similarly to other loans: If you fulfill your commitment to make payments on time, the loan can have a positive impact on your credit, but if you make late payments or miss payments, that can have a negative impact on your credit.
However, student loans have some important differences from other types of loans. First, you may not have to undergo a credit check to open certain types of student loans. And you may have extra time before any late payments would be reported to the credit bureaus.
Here’s a look at the potential ways that student loans can affect your credit scores and reports.
As with other types of credit, if you make your monthly student loan payments on time and in full, they can help you build positive payment history. Your payment history is the most important factor in your credit score, accounting for about 40% of your score.
On the other hand, if you miss a student loan payment by 30 days or more, your lender will usually report it to the credit bureaus. Reports of late or missing payments can have a negative effect on your credit score, and can remain on your credit report for up to seven years.
Student loans are different from most other types of credit because they often allow you to delay making payments until six months after your college graduation. You can make payments while you are still a student, but with most student loans, you will not have to worry about late payments until after college.
Part of your credit score is based on the variety of different types of credit you have. Lenders like to see that you are able to manage different types of credit, so it can be helpful to have a student loan along with a credit card, for instance, rather than just two credit cards on your credit report.
Length of Credit History
Many college students and recent grads don’t have established credit histories. Having a student loan can help with that; it allows you to build credit history even while you’re still in school.
Having an established credit history when you graduate can be helpful, as you may be ready to use your credit to purchase a car or get a credit card with a low interest rate. The length of your credit history makes up about 15% of your score.
New credit inquiries can normally ding your credit score temporarily. However, borrowing with a federal student loan usually does not require a credit check. (Federal Direct PLUS loans for parents or graduate students usually do require a credit check.) In most cases, if you choose a federal student loan for undergraduate education, your credit report will not reflect a new inquiry.
If you apply for private student loans or student loan refinancing, the lender will usually require a credit check, which will show up as a hard inquiry on your credit report. If your parent or another person takes out a student loan for you or serves as a co-signer for your loan, their credit will also be checked.
Keep track of how student loans and other credit activity are affecting your credit reports and scores from all three bureaus with regular credit monitoring from ScoreSense®. If you’re not a member, try ScoreSense with a 7-day trial.