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 30th August 2019

America is more in debt with student loans than any other loan. 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


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.

The company works as a Predictive Analytics, they will consider all the information on credit and analyze it to predict your credit future. It generally uses your information which is provided by credit reporting agencies to create your credit scores

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, might lose 90 to 110 points. FICO score depends on many factors.

 It should be noted that FICO is not the only player in the market. There is another one which is called The VantageScore which is gaining popularity.

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 affect 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. 

There pre-qualification processes that help you to receive compatible rates that 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 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 

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:

Frequently Asked Questions

  • 1.How does paying my student loans affect my credit score?

    If you want to improve your credit score, you need to make on-time payments and prevent falling into default. It is important to understand that student loans will not affect your credit score, it is the way you go about paying back your student loans that will affect your credit score.

  • 2.Is making late payments affect my credit score?

    Being a few days behind a payment will not affect your credit score. For private loans, if you are behind a payment by 30 days it will show up on your credit report. In the case of federal student loans after 90 days of delinquency, the late payments are reported to the 3 major credit bureaus.

  • 3.Can my student loans affect my chances of buying a house?

    A student loan on its own cannot affect your chances of buying a house. The deciding factor here is to your debt to income ratio, so watch out for factors that affect your debt to income ratio.

  • 4.Can student loans put a lien on your house?

    If you are in default, the Department of Education can sue you to collect on the defaulted loan. Since the statute of limitations is inapplicable there are no time limitations on the collection of the debt for federal loans. 

  • 5.Can my bank account be garnished for student loans?

    Only debts like federal loans can be subjected to wage garnishment.