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How Do Student Loans Impact Your Credit Score?

By Maurie Backman – Updated Feb 3, 2020 at 5:05PM

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Student loans can eat up your income -- but will they take down your credit score in the process?

Graduation cap on top of hundred-dollar bills.

Image source: Getty Images


The stronger your credit score, the more likely you are to get approved the next time you're looking to borrow money or secure a line of credit. Having solid credit can also make borrowing more affordable. For example, you'll probably snag a much more favorable rate on a loan with a credit score of 750 than you will with a score of 600. As such, it pays to do whatever you can to keep your score up.

But what if you just graduated college and have a pile of student debt? Will those loans drag down the credit score you worked so hard to build?

How student loans might impact your credit

Student loans fall into the same category as mortgages and auto loans -- they're installment loans that generally come with a lengthy repayment period. As such, if you make a point of submitting your loan payments on time and in full, your loans could actually end up helping your credit, not hurting it. That's because your payment history is the single most important factor that goes into determining your credit score, and paying bills on time keeps that facet of your credit in check.

Furthermore, if your student loans represent the first type of debt you've ever had to repay, they can help you overcome a non-existent credit history. And that could help your credit as well.

On the other hand, falling behind on your student loans, or blatantly missing payments, can hurt your score tremendously. If you find that you're struggling to make your monthly loan payments, there are options you can explore to get some relief and avoid becoming delinquent.

If you have federal loans, you can request an income-based repayment plan. Under such a plan, your monthly payments will be calculated as a percentage of your income, which means you'll likely wind up with a lower payment than what you were previously on the hook for. You can also look into deferring your loans if you experience a temporary loss of income or other financial hardship that prevents you from making any type of payment.

If you have private student loans, you'll have fewer options to explore, since private loans don't come with the same level of borrower protections as federal loans. Still, you can try to refinance your loans so that you're lowering your interest rate in the process. In doing so, you'll reduce your monthly payments, making it less likely that you'll be forced to default.

Don't fret over student debt

Graduating deep in debt can be distressing, but you don't necessarily have to worry about your student loans destroying your credit score. As long as you manage to keep up with your payments, your loans could end up boosting your score, thereby making it easier for you to borrow.

That said, having too high of a debt-to-income ratio (which might happen if you have a lot of student debt relative to your income) could hurt your chances of being able to borrow, particularly when it comes to getting a mortgage. As such, it pays to not only stay current with your student loan payments, but perhaps even work on knocking out that debt early. If you’re willing to work a second job, move back home, bunk with roommates, or take other such relatively drastic actions to free up cash, you might manage to eliminate that debt ahead of schedule -- and save yourself some money on interest in the process.

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