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How Student Loans Affect Your Credit

Heather Nicole Jarvis

How Student Loans Affect Your Credit

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Information about your student loans is reflected on your credit report and will influence your credit score. A high credit score based on a positive credit history helps you qualify for favorable terms on mortgages and other loans. A low credit score can make it hard to get good interest rates or any loans at all.

Your credit report is a history of accounts that includes information about how you pay your bills. Creditors, insurers, employers, and other businesses use your credit report to evaluate lots of things that matter (like your applications for credit, housing, and employment). It’s a good idea to review your own credit report and check for inaccuracies. Download your credit report free from

Credit score is a three-digit number intended to predict whether you will pay your bills over the next couple of years. A high credit score helps you get access to good credit terms like lower interest rates.

There are many different credit scoring models and the majority of lenders look at multiple FICO scores to make credit decisions. The credit score used by a lender to assess your creditworthiness might be different from the score you receive.  To qualify for the best credit terms, you typically need a FICO score of 720 or higher.  A FICO score of 790 out of 850 is considered excellent.

A credit score is determined by examining five factors: payment history, amount owed, length of credit history, new accounts and inquiries, and credit mix. Some factors are weighted more heavily, such as payment history.

Five Factors Impacted by Student Loans

  1. Payment history: As long as payments are made on time, student loans can improve your credit score as part of a positive payment history. Late student loan payments will lower your credit score the same as late payments on any other type of account. Negative information stays on your credit report for seven years. Student loans in deferment or forbearance are considered “paid as agreed” and contribute to a positive payment history.
  2. Amounts owed: The amount of available credit you’re using on revolving accounts is heavily weighted, but because student loans are categorized as installment credit, the amount owed on student loan debt does not have a significant effect on your credit score. Still, prospective lenders will consider student loan balances when evaluating whether or not you can manage additional debt.
  3. Length of credit history: Student loans can positively affect your credit score by helping you build a long credit history. A student loan’s age is measured by the number of months since the open date.
  4. Types of credit used: A student loan can positively affect your credit score by contributing to a mix of credit types, for example if you have student loans (installment loans) and credit cards (revolving credit).
  5. New accounts and inquiries: Applying for new credit can cause a slight drop in credit score when the lender makes credit inquiries and when new accounts first appear on a credit report. New student loans will have the same effect as any other new credit account.

Prospective lenders also want to know that you can afford to make your payments on the new mortgage (or car loan, or whatever you are applying for). If you owe a lot on your student loans, even if you always pay on time, a prospective lender is going to factor your indebtedness into their assessment of your ability to make additional debt payments.

Financial Vocabulary

A key to understanding financial obligations is to understand the terminology. Accompanying its student loan advice, the Division will be providing definitions to commonly used financial terms.


The addition of unpaid interest to the principal balance of a loan increasing the overall cost of the loan.


A postponement of payment is allowed under certain conditions (for example when a borrower is a full-time student) during which interest does not accrue on subsidized loans.


A period during which loan payments are temporarily suspended or reduced. Interest continues to accrue and unpaid interest will be capitalized.

Installment loan

A loan repaid with interest in periodic payments. Student loans are installment loans.

Revolving credit

A line of credit that can be used up to a certain limit or paid down at any time. Credit cards are revolving credit accounts.

Subsidized loan

A loan based on financial need for which the federal government pays the interest that accrues during specific circumstances, for example when the borrower is in school.

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