How Do Student Loans Affect Credit Scores?
Learn more about the many ways student loans could affect your credit score—and how you can monitor your credit
As if there’s not enough to deal with when it comes to school and student loans, there’s also credit to consider. That’s because if student loans are reported to credit bureaus, they can affect your credit in a number of ways.
If you think you’ll need student loans—or you already have them—it could help to do a little homework to learn more about student loans and credit. This is especially true because of how important credit could be in the future when you try to do things like buy a house or get a job.
Types of Student Loans and How They Could Affect Credit Scores
There are two types of student loans: federal and private. Federal student loans are funded by the Department of Education, while private loans are typically made by a bank or other financial institution.
Whether they’re federal or private, student loans are classified as a common type of loan called installment loans. An installment loan is for a fixed amount of money plus interest over a set period of time. And the borrower agrees to make payments until the loan is paid off.
Mortgages and auto loans are other kinds of installment loans. And like those loans, if student loans are reported to credit bureaus, they could affect your credit.
Credit Scores and Credit Reports
Speaking of credit bureaus, the following may help clarify some things about credit reporting and scoring:
First, there are three major credit bureaus: Equifax®, Experian® and TransUnion®. These credit bureaus collect and compile the information that goes into your credit reports.
Those credit reports are used by credit-scoring companies, such as FICO® and VantageScore®, to create credit scores. And those companies may have multiple scoring models they use to calculate credit scores.
Those are just some of the basics. But the important thing to remember is that you have more than one credit report and more than one credit score that may be used to judge your creditworthiness.
Back to student loans.
One way student loans can affect credit has to do with something called “credit mix.” Your credit mix is the combination of all your debt, including installment loans and revolving credit. VantageScore says credit mix is part of a “highly influential” portion of its scoring calculations. And FICO says credit mix determines 10% of its scoring model.
Having student loans could help give you a better mix. The reason, according to FICO, is because lenders may see you as a better candidate if you’ve shown you can manage multiple loans and lines of credit. But that’s only if you’re keeping up with payments and paying all your accounts on time.
Account History and Payment History
The Consumer Financial Protection Bureau (CFPB) says part of having a good credit score is showing you’re an experienced and responsible borrower. And timing can play a role in two ways:
First, how long your accounts have been open could be a factor in scoring calculations. VantageScore says it’s “less influential” than other aspects, while FICO says it accounts for 15% of its scores.
Second is your payment history. VantageScore says it’s moderately influential to its credit models. And FICO says it accounts for 35% of its scores—more than any other factor.
Student Loan Payments and How They Could Affect Credit Scores
So account and payment histories can be a big part of calculating credit scores. And making student loan payments on time could be a part of building a good credit history.
But credit reporting cuts both ways. Getting behind on student loan payments could have negative effects. With that in mind, here are answers to a few common questions about paying student loans:
Does a Late or Missed Student Loan Payment Affect Your Credit Score?
A late student loan payment could reduce your credit score, depending on how late it is and whether it’s reported by your lender to the credit bureaus. Plus, all the major credit bureaus say late payments could remain on your credit report for seven years.
If you have a federal student loan, the Department of Education says late payments will be reported to credit bureaus after 90 days. If you have a private student loan, lenders may report them earlier. FICO says lenders typically report late payments at 30 days late, 60 days late, 90 days late, 120 days late and 150 days late. FICO also says accounts that are charged off—meaning they’re written off as bad debt and possibly sent to collections—are also typically reported.
Additionally, FICO says the more overdue your payment, the worse it could be for your credit score.
What Happens When Student Loans Go Into Default?
Having student loans go into default can have consequences beyond just credit—and you could still be on the hook for what you owe. You can learn more about what that means and how to get out of default from the Department of Education.
If you’re having trouble with federal loans, there may be loan forgiveness options or other ways to lower or suspend your payments. If you have private loans, you can ask your lender whether there are any options available.
Does Paying Off Student Loans Help Your Credit Score?
Not exactly. But that doesn’t mean you shouldn’t pay off your student loans if you can.
Paying off student loans could temporarily hurt your credit score—but just a little—according to the National Foundation for Credit Counseling. But the counseling organization also says paying off student loans should be thought of as an accomplishment and will help your overall financial health.
Student Loan Consolidation and How It Could Affect Credit Scores
Student loan consolidation is a lot like any other loan consolidation—it’s the process of taking out one new loan to pay off your other loans.
Some of the advantages of student loan consolidation could be lower payments, interest savings, more favorable repayment terms, flexible loan term lengths and simplified payments.
Everyone’s situation is different, but consolidating or refinancing your loans could affect things like your account history, your payment history and your credit mix. And if consolidation or refinancing requires a hard inquiry, that could also affect your credit score. Getting help from a qualified student loan professional could help if you’re unsure.
Federal Loan Consolidation vs. Private Loan Consolidation
According to the Department of Education, federal student loans can be consolidated at no cost—aside from any interest. But consolidating federal loans could have other effects, depending on your situation. The agency has information that may help you decide whether federal loan consolidation is right for you.
Private student loans are serviced by private companies, and they can’t be consolidated under the federal consolidation loan program. You may be able to refinance them privately, according to the Department of Education, but student loan refinancing could depend on your credit score.
Monitoring Credit and Repaying Student Debt
Whether you have a federal student loan or a private one, your credit score might be affected in some way. One way to keep track of everything is to monitor your credit with a tool like CreditWise from Capital One. You don’t have to be a Capital One customer to use CreditWise. Plus, it’s free, and using it won’t hurt your credit score.
You can also learn more about getting free credit reports directly from the three major credit bureaus once every 12 months by visiting AnnualCreditReport.com.
Navigating student loans and repayment plans can be stressful, but knowing how your credit fits in may help you make more informed decisions. And there are tools from the CFPB and the Department of Education that can help when it comes time to start repaying your loans.
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
Your CreditWise score is calculated using the TransUnion® VantageScore® 3.0 model, which is one of many scoring models used by lenders. It likely won’t be the same model your lender uses, but it is an accurate measure of your credit health. The availability of the CreditWise tool depends on our ability to obtain your credit history from TransUnion. Alerts are based on changes to your TransUnion and Experian® credit reports and information we find on the dark web. The tool is not guaranteed to detect all identity theft.