The Impact Of Student Loans On Your Credit Score

Jan 17, 2024 By Susan Kelly

Paying back your student loan on time improves your credit score, but paying late might have the opposite effect. However, you may be given a further grace period on student loans before they are considered delinquent. Most student loans come in installment loans, where you make equal monthly payments throughout the loan. The lender will then submit your positive payment history to the credit agencies. As a consumer, you have the legal right to see your credit report. By the end of 2023, you may check your credit report for free from each of the three leading agencies every week, and you can narrow your TransUnion report as frequently as you want. That one refreshes once every week. Making payments on time, every time, is an excellent way to build a positive credit history.

Creditworthiness, or the likelihood of repaying debts, is measured by a number known as a credit score. Creditors such as banks, landlords, and potential partners use it to gauge whether or not to grant you credit or a loan and on what conditions. Credit reports are generated by CRAs and include details on a person's credit history, such as their borrowing and repayment habits, credit accounts, and public records. Your payment history, credit usage, length of credit history, credit mix, and new credit are all considered when determining your credit score. Taking out a student loan may affect your credit score because of its potential influence on several criteria.

Payment History:

One of the most significant aspects of your credit score is your payment history. The most frequently used credit scoring model, FICO, uses this factor for 35% of your score. Having a good payment history means you always pay on time and never miss a payment. A person's credit score might take a hit if payments are skipped or made late, but it can rise if payments are always made on time.

Payments on student loans should be made on time and in full to avoid hurting credit. Communicating with your lender and looking into alternate repayment plans or hardship programs is crucial if you need help paying your student loan payments. This will help you avoid late or missed payments and keep your credit score in good standing.

Credit Utilization:

Credit usage measures how much of your available credit you are utilizing. It is worth 30% of your overall FICO score. Maintain a credit utilization ratio of no more than 30%. A high credit usage ratio may signal to lenders that you are too dependent on credit and pose a greater risk as a borrower.

Your credit usage ratio will reflect the presence of any student debts you may have. A large student loan amount of the available credit negatively impacts the credit usage ratio. Maintaining a low credit usage rate is particularly critical if you have a substantial student loan burden. Paying down or raising your credit limit on student loans is one strategy.

Length Of Credit History:

Regarding the FICO score, the length of your credit history is worth 15%. This number reflects how long you've gone without using your credit accounts. The size of a person's credit history is considered favorable since it demonstrates their reliability as a borrower and a responsible debtor.

If you still need to get a credit history, taking out student loans might help you begin building one. A student loan may positively affect your credit score, but if your credit history is limited, it may take some time before you see any substantial changes. Be patient and keep making your student loan payments on time since this will gradually help your credit score rise.

Types Of Credit Used:

Ten percent of your FICO score is based on the types of credit you've utilized. A credit score considers the many types of credit you've established, such as credit cards, vehicle loans, and school loans. Having a wide variety of credit accounts is a strength.


Paying back your student loan on schedule can improve your credit score, whereas paying late will have the opposite impact. You have more time to settle before being considered late if you have a student loan. Most student loans come in the form of monthly installments. The financial institution keeps a record of this and submits it to the relevant credit agencies. You have the right to see your credit report information. With NerdWallet, you can get a free TransUnion credit report every 14 days and updates from the other two significant bureaus every week until 2023. The content is updated weekly. Make on-time payments, and your credit score will rise.

Related Articles