How student loans affect credit score 

How student loans affect credit score | Comprehensive guide

How student loans affect credit score 

People often need to borrow money to complete their education. A personal loan or a student loan is often the financial vehicle used. Do you know that a student loan can have an impact on your credit score?  Your credit score determines how easy it is going to be for you to ask for your first mortgage or car. Thus, your credit score plays a huge role in your life as a consumer. 

Lenders approve or deny and write down conditions according to your credit score. Here we are going to check which this impact. Besides, we are going to give you some tips about how to boost your credit score.

How borrowers calculated your credit score?

There are diverse ways to calculate a credit score. Borrowers in America use mostly the FICO® score.  The range of a FICO score starts at 300 and goes until 800.  If you want to obtain a good interest rate, you need at least a score of 600. The following graphic gives you an overview of the different metrics involved. 

  • Payment history:  They check if you have late or missed payments.  This has a substantial negative impact. 
  • Amounts owed: This is the difference between your total debt and income. The higher this ratio is, the lower the credit score you get.
  • Length of credit history: This metric is simple, the soonest that you asked for credit and your life the better. Also, lenders take care of the average length of your credits.
  • New credits:  How many credits have opened in your life? Lenders utilize this metric to calculate the risks.
  • Credit mix: Do you have a mix of credit? This is also a risk factor considered by lenders. 

Refinancing your student loan has an impact?

Refinancing student loans can affect your credit score. When applying for refinancing, the lender will perform a hard inquiry on your credit. This can temporarily lower your FICO credit score. However, if you pay on time, you can benefit from a better score over time. 

Refinancing for undergraduates is also possible, here is how: 

Can Student Loans Positively Impact Your Credit?

 Student loans can positively impact your credit in many ways. Firstly, if you have a good credit history and credit mix, taking out a student loan can further add to your positive credit score. Secondly, consistently making on-time payments to pay off your student loan can help your credit score. The payment history is the most crucial factor in determining your credit score, and consistently paying your student loan on time can reflect positively on your credit report. Lastly, private student loans can also help you build good credit, provided you pay your loan on time. In conclusion, student loans are a wonderful way to not only help finance your education but can also positively impact your credit history and credit score eventually.

How do student loans affect positively credit scores?

Student loans are a type of debt that can have a significant impact on your credit score. They are reported on your credit report and are considered a part of your credit mix, which makes up about 10% of your FICO score. Your credit history and credit report are vital sources of information that lenders use to determine how likely you are to pay back a loan. Student loans can affect your credit if you miss payments or default on the loan. Conversely, making payments on time can have a positive impact on your credit score. It’s crucial to remember that student loans affect your credit score differently than other types of debt, such as credit card debt. Evaluating your credit history is crucial in determining your overall creditworthiness. Maintaining good credit by making payments on time and keeping your credit utilization low can help you qualify for better loan terms in the future.

How your student loan can affect your credit score negatively.

 In the case of federal student loans, it is common for most servicers to give a 90-day grace period before informing all three major credit bureaus (TransUnion®, Experian®, and Equifax®) of any overdue payments. However, if a payment is missed, a late fee may be applied immediately. Private lenders, on the other hand, typically report loans that are 30 days past due to the bureaus. The transition from delinquency to default status primarily depends on the type of loan you have.
For instance, loans under either the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program (FFEL) will default after 270 days or nine months. If you have a federal Perkins Loan, the period 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.

 Private student loans usually have a 120-day period for default, although this might vary based on your agreement with the lender. There are also certain states that enforce a statute of limitations on private loans. This defines the duration for which a lender can reclaim the borrowed amount. When you default on your student loan, it will remain on your credit report for as long as seven years, irrespective of the loan type.

What is an adverse credit history?

 An adverse credit history refers to a record of an individual’s past credit behavior, which negatively affects their ability to access credit in the future. This credit history may comprise overdue payments, defaults, bankruptcy, or County Court Judgements (CCJs), which suggest that an individual may have difficulty repaying loans or credit outstanding. Such credit history poses a risk to lenders, making it harder for individuals with an adverse credit history to secure credit, as lenders may be reluctant to offer credit to them. It is important to maintain a good credit history by making payments on time and clearing outstanding balances in full, as this enhances the chances of future credit access.


In conclusion, student loans can positively and negatively impact your credit score. Making on-time payments can positively impact your credit score. On the other hand, missing payments or defaulting on the loan can have a negative impact.

Refinancing your student loan can also affect your credit score temporarily. This can benefit you eventually if you make payments on time.

It is important to maintain a good credit history.  Making payments on time and keeping your credit utilization low to qualify for better loan terms in the future. Additionally, having an adverse credit history can make it harder to secure credit in the future. Therefore, it is crucial to maintain a good credit history.

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