How Do Student Loans Affect Your Credit Score?

Student loans affect your credit in much the same way other loans do — pay as agreed and it’s good for your credit; pay late, and it could hurt it. Student loans, though, may give you extra time to pay before you are reported late.

Student loans are generally installment loans — you pay a specified amount for a certain time period. The lender reports this to credit bureaus, and you begin to establish a track record.

You have a right to see the information the credit bureaus keep. You can check all three major bureaus’ reports for free each week, and you can check a free credit report from TransUnion through NerdWallet as often as you like. That one updates weekly.

If you pay on time, every time, you'll begin to establish a solid record of managing credit.

Here’s what you need to know about how student loans can affect your credit score.

If you pay late or skip a payment

Forgetfulness happens, and a brief bout won’t impact your credit. Your score will start to drop only after your lender reports your late payment to one or — more likely — all of the three major credit bureaus.

How long before it’s reported depends on the type of loan you have:

• Federal student loans: Servicers wait at least 90 days to report late payments.

• Private student loans: Lenders can report them after 30 days.

However, lenders can charge late fees as soon as you miss a payment.

If your lender does report your late payment, also known as a delinquency, it will stay on your credit report for seven years.

The more overdue your payment, the worse the damage to your credit. For instance, your federal student loan will go into default if you don’t make a payment for 270 days. That will hurt your credit even more than a 30- or 90-day delinquency.

If you cannot pay your student loans

Sometimes money gets tight. In those situations, ask your lender about lowering or pausing your monthly student loan payments. You might be able to:

• Sign up for an income-driven repayment plan if you have federal loans.

• Apply for a modified payment plan if you have private loans and your lender offers this option.

• Enroll in deferment or forbearance to temporarily pause your monthly payments.

Changing the terms of your loan does not hurt your credit. As long as you handle payments as agreed — even if that means paying $0 per month — your credit score shouldn’t suffer.

Does paying student loans build credit?

Paying on time is the most important factor affecting your credit score. You can’t get traction without it. Making regular, on-time payments on student loans will help build credit.

If you've used only one type of credit before, like a credit card, then having a student loan is good for your score because it helps your credit mix. But that's a smaller score factor, so it's not worth taking out a loan you can't afford just to have a mix of credit types.

Student loans taken out by parents, such as federal parent PLUS loans and private parent loans, affect only the credit of the person who took them out. So if a parent takes out a federal parent PLUS loan, for instance, to help you pay for school, it affects their credit. A student loan you took out and your parent co-signed, on the other hand, appears on both of your credit files and can affect scores for both of you.

How does refinancing student loans affect my credit?

It’s smart to shop around for the lowest rate before refinancing student loans, especially if you can do it without dinging your credit. Either of the following options will keep you from having multiple hard inquiries on your credit report.

• Apply for all the loans you’re comparing within a 14-day period. Under the FICO credit scoring model, multiple hard inquiries of the same type — such as student loan inquiries — count as a single inquiry if they happen within a short period. Various versions of the credit scoring model specify different time frames — including 14, 30 and 45 days — but you’ll be covered under all of them if you submit all your applications within 14 days.

• Get rate estimates through lenders’ pre-qualification processes. Some lenders let you get a rate estimate that won’t affect your credit.

How credit scores affect new student loans

All of your student loans can affect your credit. But you may not need good credit to take out a student loan in the first place.

• For federal loans: Most types of federal student loans, including all federal loans for undergraduates, don’t require a credit check. Federal direct PLUS loans, available to parents and graduate students, do require one. However, your credit score won’t affect your rate; all PLUS loans disbursed in the same year have the same rate.

• For private loans: Private loans require that at least one borrower have good credit. The lender will perform a credit check to determine whether you qualify for the loan. The higher your credit score, the lower the interest rate you’ll likely receive. Often, undergraduate students need a co-signer to qualify for private student loans.

Check your credit if your federal loan servicer is Great Lakes

Nearly 5 million borrowers whose federal student loans are serviced by Great Lakes Higher Education Corp. may have seen their credit scores dip because their debts were erroneously reported to the major credit bureaus during the automatic six-month forbearance that began in March 2020.

The borrowers’ paused payments may have been reported as “deferred” as a result of a coding error. The paused payments should have been reported as if the borrower had made them. If the borrower was current when forbearance began, for example, the status should be “current.”

Deferred status is not a scoring factor under FICO credit scoring formulas, the ones most commonly used to make lending decisions. But deferred status can lower the credit scores generated by VantageScore formulas — the scores most commonly offered for free to consumers as a way to track their credit history.

Great Lakes says it is working with credit reporting agencies to correct the inaccuracies. Once the information on the underlying credit report is correct, credit scores should be unaffected.

Borrowers should check their credit reports from each of the three credit reporting bureaus at AnnualCreditReport.com, the free, government-run website.