Do Student Loans Affect Credit Scores?

Key Takeaways:

• Student loans can help you build credit.
• Your loans’ payment history, length of credit, and hard inquiries of private student loans can all have an impact on your credit score.
• Keep track of all payments and due dates and consistently monitor your credit reports to help you manage your student loans.

In this article:

Student loans and your credit score
Prepare for repayments
How to remove student loans from your credit report
Student loans and your credit

If you’re concerned about the impact student loans will have on your financial future, you’re far from alone. And while your primary focus may be on creating a plan to pay off those loans efficiently, it’s important to know that your student loans can influence other areas of your financial life as well, like your credit health.

Student loans are a type of installment loan. Like other loans, student loans appear on your credit report. As a result, they can play an important role in helping you build credit history. Here are some ways your student loans can impact your credit score:

Student Loans and Your Credit Score

Payment history

The most important thing you can do to maintain healthy credit is make sure you’re paying your bills on time — student loans are no exception. Even one missed payment can lower your credit score, and late payments can stay on your credit report for up to seven years.

Staying on top of your student loan payback schedules is essential, especially if you may need to pay your loans to different servicers. You can use studentaid.gov to help keep track of your federal student loans’ statuses and servicer information.

You can see your payment history for loans on your credit report. With each account, you will see a month-by-month breakdown of your balance, scheduled payment and the amount paid. You can get your credit report for free each week at annualcreditreport.com. Payment history may be the most important factor, but there are other ways your student loans can affect your credit score.

Inquiries

When you apply for credit, the lender may pull your credit report to help make a lending decision. This is sometimes called a hard inquiry. A hard inquiry may lower your credit score. By how much depends on the credit model and your credit history. Inquiries tend to be one of the less influential credit score factors and the impact of a hard inquiry on your credit score tends to lessen over time. 

Most federal student loans do not require a hard inquiry on your credit report. Currently, Direct PLUS loans are the only federal student loan option that require a hard inquiry. This type of loan is only available to graduate and professional students, and parents of undergraduate students. On the other hand, private student loans may require a hard credit inquiry, which can impact your credit score. To minimize the impact of multiple hard inquiries, it’s smart to shop around for your student loan over a short period of time — ideally within two weeks.

Length of credit

The average age of your accounts is one factor in how your credit score is calculated. Having an older average age of  credit accounts tends to be better. After you receive a student loan, it will be reported by the lender to the credit reporting agencies and added to your credit report. This will help you build your credit history.

Since you’re likely to pay off student loans over a long period, they can help you begin establishing credit while also helping you maintain a higher average credit age until they’re paid off and the accounts are closed. Making positive moves to eliminate debt is a smart financial move.

Does paying off student loans help your credit score?

Because credit scoring models tend to favor active accounts, once a student loan account is paid and closed, you may see a drop in your credit score,  due to the resulting decrease in average age of your active credit accounts. However, this drop is typically temporary.

Prepare for repayments

Student loans can feel like an oddity in the world of credit because some of them, like eligible federal loans, don’t have to be paid back immediately. So, it’s easy to forget about these loans while in school. This is unlike an auto loan or mortgage, which typically require repayment soon after being approved.

Make sure to track all your loans, noting their repayment dates and monthly payment amounts so you can adjust your budget and avoid missed payments. There are online tools available to help you track your student loans, or you can create your own spreadsheet. Consider consistently monitoring your credit report as well to be sure your payments and balances are reported correctly. Contact your servicer if you have any questions.

How to remove student loans from your credit report

There is nothing you need to do to remove student loans from your credit report. Loans closed in good standing will remain on your credit report for up to 10 years. Adverse information, like a missed payment, can remain on your credit report for seven years. If you see something on your report you don’t recognize, contact the lender or servicer directly.

You will likely have several student loans on your credit report since you tend to get a new loan each semester and some loans may have different servicers. Plus, loans can be transferred to a different servicer. It’s only natural that you may feel confused. You can use the loan information in the account information section of your credit report to contact the servicer directly. If you suspect you’ve been the victim of fraud, you can submit a dispute. If a student loan on your credit report is the result of fraud, it will be blocked from your credit report.

Student loans and your credit

It’s difficult to be precise in how your credit score will fluctuate with student loans because there are different scoring models, and they may weigh categories differently.

You have a lot to think about when pursuing your education, but be sure to make time to monitor your student loans and your credit reports. Just like more time spent in class can help raise your grades, more time working with and understanding your finances can help improve your credit health.

If you’d like help understanding your credit report, read our interactive credit report guide, which breaks down each section of your report and explains how the information may impact your credit score.