Student loan affect on credit score

Here we see how student loans have affects on your credit report. You will be learning about credit report, FICO score, Deferment or Forbearance and options related to the a better credit score

Updated by Sagar.C on 12th June 2019

America is more in debt with student loans than any other loans. If you have a debt and you want to know how it affects your credit score then you need to read this article. If you want to buy a car tomorrow or a house, your student loan might make it difficult for you.

Student loans do affect your credit score. It is very simple to understand, if you pay your loan on time you will get a better credit score, if you are late on your payments you might be going towards to be a defaulter, which will have a very bad effect on your credit score.

Let us see the in-depth explanation for both the scenarios.

Table of Contents

On-time payment vs late payments

1 - On-time payment affect on your credit score

On time payment will never have an adverse effect on the credit score, in this case, your score will go up.

According to FICO, 35% of your score depends on the payment history you make. So if you have a good record with on-time payments then you likely to have a good credit score.

You will be adding credit diversity. FICO will see all the credit types.

The credit diversity adds up 10% of your credit score. If you have mortgage and credit cards along with the student loan then it’s a good thing for your score.

The length of your credit history is 15% of your score. If you stick to one student loan account for many years then this will help your score.

FICO calculation has credit mix, this is basically the different type of loans and lines of credit you have. If you have both installment loans and revolving loans then it’s a good thing for your metric

Credit mix is just a small factor, about 10% in total for your credit score. If you pay off your student loans then there will be a chance of your credit score go down slightly if you just had this as an open installment loan. it shouldn’t affect your decision to pay off your student loans.

The life and length of your credit history add up 15% on your credit score. As all the student loans are attached to long repayment periods, this will help to create a good credit report. You should never consider stretching your debt just for the sake of your score. You can pay off your student loan as soon as possible.

2 - Late payments affect the credit score

Student loans are constructed with installments so they are called as installment loans. These installment loans have a fixed balance which needs to be re-paid by you over the period.

If you have mortgages, auto loans or student loans then you will fall in this category.

However, if you’re late for making payments or you don’t pay at all, your credit score will be affected negatively.

Your FICO score will also get affected if the payments are not made on time. The negative effect on your credit score depends on various factors like how high the score was and how long have you been delinquent. 

If you are a few days late for your payment it won't affect your credit score that much but if you're 30 days behind of your payment for the private loan it will definitely have a bad effect.

If you're late with your Federal student loan it will be reported to 3 major credit bureaus after 90 days delinquency. This is how Federal student loan has effects on your credit score.

Always consider repayment options if you're having trouble making payments. This will help you to do your payments on time.

Credit score and Credit report

It's simple, if you pay your student loan on time it will help your credit score. If you have hiccups with your payments then it's a problem. You always have different options if you miss your payments but still, it will have some effects on credit score.

When you pay your student loans to your lender, they will report about it to credit bureaus and you have a full credit report with them. Keep yourself updated with them.

Let us read about the credit score now.

Credit Score

It is the number which determines the risk that you will be a defaulter on credit payments. If you have a higher score then there is no risk for being a defaulter. Credit scores are usually based on credit reports you should always be kept on the eye of your credit reports.

There are companies which keep your credit score. One of them is CrediWtors. They use the FICO score. This score ranges between 300 to 850 and it is calculated on the basis of different credit data which reflects on your credit report.

Your late payment affects FICO score where you're on time payment will increase it. We will read about FICO in this article but first, let us see what is Credit Reports.

Credit Reports

The statement which is created by credit reporting agencies which have information about your debts, credit standing, character, creditworthiness, general reputation, mode of living or personal characteristics is called Credit reports.

Credit report works as a reputation, lenders use this information when you apply for loans. From this report, they will decide whether to extend your credit or not.

There are different agencies for the credit report - 

  • Equifax

  • Experian

  • TransUnion

These are the main credit agencies nationwide. There are other regional credit reporting agencies as well but they work on the basis of the nationwide agencies.

You must be curious to know, What factors your credit report have?

There are usually five categories in which credit report is broken down.

  • Personal Information

  • Accounts Reported Monthly

  • Accounts Reported When in Default

  • Public Records

  • Inquiries

FICO and FICO scores

The original name of the company is The Fair Isaac Co., it was shortened over the period to FICO and now the company’s official name is FICO.

It generally uses your information which is provided by credit reporting agencies to create your credit scores but FICO is not a credit reporting agency. It is not the only player in the market. There is another one which is called The VantageScore which is gaining popularity.

The company works as a Predictive Analytics, they will consider all the information on credit and analyze it to predict your credit future.

Credit scores are mainly used to predict consumer behavior. This can help lenders to know how someone is likely to pay their bills on time or are they able to handle a bigger credit line.

It can predict if you're inclining towards bankruptcy or you might be profitable to lenders.

The FICO score range is 300 to 850 as above mentioned, your score should be around 760 to get the best rates from lenders. This score will also help you with discounts on insurance.

Let us see an example - 

If Mr. A has an average credit score of 680, and if he has 30-day delinquency then he might lose 60 to 80 points. On the other hand Mrs. B, who has a very good score of 780, she might lose 90 to 110 points. FICO score depends on many factors.

Deferment and Forbearance effects on credit score

As it is mentioned above, Deferment and Forbearance in Federal student loans won't affect your credit score as you have 'Paid as Agreed' term in it. However in private loan, if you're selecting the options of deferment or forbearance, it will hurt your credit score.

Refinancing student loan effect on credit score

You need to be smart when you're selecting refinancing options, select the loans which have the lowest rates without hurting your credit score.

You need to apply for loans within a 14 day period because under the FICO credit scoring model it has multiple hard inquiries like student loan inquiries. Different credit scoring model has different time frames it includes 14,30 and 45 days you will be covered with all if you submit your applications within 14 days.


[Also Read: Best places for student loan refinancing


There pre-qualification processes which help you to receive compatible rates which don’t affect your credit.

Options to avoid bad credit score

If you have missed your payments and you think you might be in trouble on a federal student loan then you need to panic. You can any day apply for deferment or forbearance options or you can also go for repayment plans. This way your credit score won't be hurt.

If you have a private student loan then you should call your loan servicer and understand about your different options if you are not able to pay your debt.

However, if you're a defaulter already then you can get benefits from credit reporting under rehabilitate or consolidate the defaulted federal student loan.

Once your defaulted loans get rehabilitated successfully then the credit reporting agencies will remove the tag 'Default' from your credit history.


[Also read: What is student loan default and delinquency? ]


If you have any history of late payment before being a defaulter it will stay unchanged on your report.

If you have applied for consolidation with Direct Consolidation Loan then the negative history will be unchanged on your report till it's too old, however, your report will reflect your current new consolidation loan as long as you make your payments for the new loan.

Options to Avoid bad credit scoreSource:


  Does consolidating affect your credit?

If you choose the option of consolidation your student loan then it will have a positive effect on your credit score. However, its gonna take time but it is beneficial as credit agencies consider that you are paying off several accounts with the consolidation loan.

  Does credit score affect the interest rate on a student loan?

Changes in credit score don\'t affect your interest rates, however, regarding your variable interest rate, it will increase and decrease on the bases of changes in underlying index rates.

If you have a good credit score then you can get a good interest rate options when you\'re going for refinancing.

  Will forbearance on student loans for a month affect credit score?

It won\'t affect your credit score however it will be affected if you have made late payments or missed any payments before selecting the options of deferment or forbearance.

  If I miss a payment on student loan debt will it affect my credit score?

Yes, you will get 30 days period to make your payment after that the situation will go bad to worse as your delinquency will be reported. This will reduce your credit score and it will be difficult to get new credit (other loans or credit card).

  How the student parent PLUS loan affect on credit score?

Applying for Parent PLUS loans won\'t have any effect on credit score but it will affect when you don\'t repay the loan

  Can paying student loans increase your credit score?

If you have credit mix then there will be no effect on your credit score but if you don\'t have credit mix (mortgage or a car loan) then it will make a slight change in your credit score.

  Does Income-Based Repayment affect credit score?

You can always keep your credit score high by paying off your loans on time. It doesn\'t matter if you have income-driven repayment plan or not.

  Does paying off a student loan early hurt your credit score?

No, it will react positively on your credit score.

  How does loan forgiveness affect credit score?

If you already have bad credit then you shouldn\'t go for the option of loan forgiveness. However, if you have a good reputation, it won\'t affect your credit score.

  Is a credit score of 650 good or bad?

Good credit score range is 670-739. So 650 is bad.