How Do Student Loans Affect Your Credit Score?

You might not think about your credit score every day, but it has a huge impact on your life. Whether you’re applying for a credit card or buying a home while paying down student debt, your credit score will determine whether you qualify and what interest rate you’ll pay. 

Student loans affect your credit score, but the effects can be positive or negative. This guide will explain how student loans affect your credit score and how you can keep your score healthy even while carrying student loan debt. 

What factors affect your credit score?

Your credit score represents your risk level. A higher score signals you’re likely to meet your repayment obligations when you borrow money. A lower score suggests you might not. 

Every major credit bureau and credit reporting agency uses a formula to evaluate risk and determine scores. Most formulas use these five factors, including FICO score, a common credit-scoring model:

• Payment history: This can be responsible for up to 35% of your score. If you pay all your bills on time every time, you will likely reap the benefits through a good score.
• Credit utilization: Represents how much of your available credit you use. For instance, if you have a credit limit of $10,000 and your balance is $4,000, your utilization is at 40%. Keeping your credit utilization below 30% can improve your score. 
• Types of credit: Two types of debt are revolving and installment. Revolving debt includes credit cards or store financing. Installment loans can be student loan debt, mortgages, auto loans, and personal loans. A mix of both can improve your credit score.
• Length of credit history: This refers to the age of your credit accounts. Older accounts in good standing show a history of responsible debt management. Opening too many new accounts too fast can damage your score. 
• Credit inquiries: When you apply for credit or request a quote on a loan or line of credit, the lender may perform a hard credit inquiry. Too many hard inquiries in a short period can damage your score. 

Do student loans affect your credit score?

For better or worse, your student loan accounts contribute to your credit score. But how they affect your score depends on how you manage your debt. 

Understanding how your loans affect your credit score can help you improve and maintain your score. 

Positive effects	Negative effects
✅ On-time payments can boost your score	❗Late payments can hurt your score
✅ Can be good for your credit mix	❗Default can seriously damage your credit
✅ Can help your length of credit	❗Can increase your DTI

Positive effects of student loans on your credit score

The general rule of thumb is that less debt is better. Still, student loan debt doesn’t mean you’re destined for a poor credit score. Here are actions you can take to leverage your student loans to improve your credit.

Payment history

One of the best ways to improve and protect your credit score is to make regular on-time payments on student loans, credit cards, personal loans, and other credit accounts.

By making on-time payments, you can contribute to your positive repayment history. This shows lenders you’re a responsible borrower. This can be crucial for young people, who might only have student loan payments to show responsible borrowing.

Credit mix

If you have revolving debt, such as credit cards or store accounts, your student loans could help diversify your types of debt.  

Negative effects of student loans on your credit score

Student loan debt can help you build credit and improve your score, but only when it’s well-managed. Student loans can also harm your credit. Avoid these mistakes to protect your credit. 

Late payments

If you make late debt payments, your score will likely suffer. Missing repeated payments, especially over a long period, signals to lenders you’re unable or unwilling to make your payments.

Here are steps you can take to avoid late payments:

1. Submit outstanding payments as soon as possible.
2. Set up autopay so you automatically make your payments on the due date.
3. Keep enough money in your linked autopay account to cover your payments.

Lenders may not report payments if they’re a few days late, but they will report payments not made within a designated period. For federal student loans, that’s typically 90 days. Private lenders have their own policies, but they can report your account for being as little as 30 days past due.

The potential for default

Missing enough payments can lead to student loan default, a red flag for lenders and credit reporting. Many borrowers have difficulties making payments, but you must let your lender know if it happens to you.

If you have trouble making payments, your options might include:

• Income-driven repayment
• Deferment or forbearance
• Student loan refinancing

These options may vary by loan type, but you should contact your loan servicer or lender to review your options.

A high DTI

Your debt-to-income ratio (DTI) refers to your debt payments as they relate to your income. To determine your DTI, add up all your debt payments, such as:

• Car loans
• Student loans
• Credit cards

Divide that total to get your DTI. For instance, if you have $1,600 in monthly debt payments and your monthly income is $4,500, your DTI would be 36% ($1,600 / $4,500). A $300 student loan payment would increase your DTI to 42% ($1,900 / $4,500).  

The lower your DTI, the better. Most lenders prefer a DTI below 36%. A higher DTI can make it hard to get a loan or credit card, and when you can, you’ll likely have higher interest rates.

Our expert recommends: Best practices

Erin Kinkade

CFP®

Make on-time payments, make extra payments when you can to reduce the loan balance—to lower your DTI, hold off on applying for additional loans unless it’s an emergency or you have no other options—establish a realistic budget and stick to it, and build an emergency fund of three to six months’ worth of living expenses to avoid using credit cards you can’t pay in full or needing to apply for a last-minute loan that doesn’t allow you to shop the best rates and terms.

How do student loans affect your cosigner’s credit score?

Many students want or need a cosigner on their application for private loans because they don’t have sufficient credit to take out a student loan on their own. A cosigner agrees to take full responsibility for student loan repayment if you don’t meet your repayment obligations.

Lenders welcome this extra layer of security and will often require it for approval. If you’re approved on your own, lenders might allow you to use a cosigner to reduce the interest rate.

Because cosigners take responsibility for the loan, they are on the hook for missed payments. As such, your missed payments can damage their credit score. 

Many lenders have a cosigner release policy, which removes the cosigner from the loan after a set number of consecutive, on-time payments (e.g., 48 payments). Ask about your lender’s cosigner release policy, and talk to your lender and cosigner to determine the best time to exercise that release. 

How Parent PLUS Loans affect parents’ credit scores

Cosigners aren’t the only ones who might have their credit on the line for your loan. Parents who take out a federal Parent PLUS loan do so using their name and Social Security number.

The loan is primarily tied to their credit profile. Any repayment activities, on time or late, will affect their credit.

If your parent or guardian took out a Parent PLUS loan to finance your education, the debt won’t show up on your credit history and therefore won’t affect your score.  

How to build credit as a student

With low interest rates and predictable payments, you might wonder whether taking out a student loan is a smart way to build credit. When managed responsibly, a student loan can help you establish a positive credit history. 

But the only time you should take out a student loan is when you need the funds to finance your education. 

If building credit is your primary goal, consider leveraging a student credit card instead.

How to build credit using student credit cards

Compared to a student loan, a student credit card offers more flexibility with less red tape. You won’t be held to a lengthy repayment plan, and you don’t need to spend a minimum amount. Student credit cards are typically a better way to build a strong credit history. 

Plenty of credit cards are out there, but the best student credit cards are tailored to your needs. 

They typically don’t have annual fees and often have less stringent qualification requirements than the average consumer credit card. That makes it easier for students to qualify even if they haven’t had much opportunity to build credit.

Student credit cards: Our expert’s advice

Erin Kinkade

CFP®

Student credit cards can be an effective tool if you begin with a small credit limit and pay the balance in full. I don’t recommend obtaining a credit card with a high credit limit. It’s too easy to accrue a balance you can’t repay. Then your parent or guardian might need to bail you out—or if nobody helps you out, it can sets you off on the wrong foot, which is discouraging. My key takeaway and advice (to clients with children and to myself as a parent) is to start with a small credit limit you can pay off each month.

Other perks

Many student credit cards offer additional perks, such as welcome offers for new members and rewards programs that allow you to earn points, miles, or cash back, which you could redeem for trips or gift cards. 

What to keep in mind

If you decide a student credit card is right for you, keep in mind the five credit score factors above. When you make regular payments and keep your credit utilization low, a credit card can help you build your score.

If you fail to do so, your score will drop. And over time, if you continue to run up credit card debt, interest and fees can make it harder to improve your credit or get out of debt.