Key takeaways
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Student loans can help boost your credit score over time if you make the monthly payments on time and in full.
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Having student loans also diversifies your credit mix, which can help improve your credit score.
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If you miss payments on your student loans, it may be reported to the national credit bureaus, decreasing your score.
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When you apply for private student loans or refinance your loans, the lender typically does a hard credit check impacting your credit score.
Student loans can hurt or help your credit. If you make on-time payments, it can help boost your credit score over time. But missing a payment can cause a significant drop in your score. Depending on the type of student loan you have, you may get additional time to make your late payment before it is reported to credit bureaus.
Understanding what steps you can take if you can’t afford to make a payment can help you avoid a major blow to your credit.
How do student loans affect your credit score?
Like any other form of debt, a student loan can impact your credit in both positive and negative ways. If you manage your student loan responsibly, your credit score will likely benefit, but a mishandled student loan can have a variety of ramifications for your credit profile.
Positive impacts
While many students take on student loans before they have an established credit history, student loans can help boost a credit score, such as a FICO Score, over time. Several elements make up a percentage of the overall FICO Score. Some of the benefits you may see include:
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Payment history (35%): If your full monthly payments are made on time, it will help you build and maintain good credit. Since your payment history makes up over a third of your FICO Score, it’s crucial to stay on track.
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Credit mix (10%): Lenders like to see that you can manage different types of credit. For instance, having a student loan and a credit card may be better than having two credit cards.
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Credit history (15%): Many recent graduates may not have had the chance to establish their credit history. Having student loans can help with that. Student loans typically have repayment plans that can last from 10 to 30 years. This can help lengthen your credit history.
Negative impacts
Like other types of debt, student loans do have the potential to lower your credit score both temporarily and over the long term. Some of the downsides to consider are:
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Credit inquiry: If you apply for private student loans or student loan refinancing, the lender will typically run a hard inquiry on one or more of your credit reports, temporarily impacting your credit score. According to FICO, each additional hard inquiry lowers your credit score by less than five points.
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Negative payment history: Because your payment history is the most influential factor in your FICO Score, missing even one payment can be devastating for your credit score; it’ll remain on your credit reports for seven years. Lenders generally report missing payments to national credit bureaus if a payment is late by 30 days or more for private student loans, and by 90 days or more for federal student loans.
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Delayed benefits: Student loans won’t make a huge impact on your credit history until you start making payments after graduation. The biggest benefits come from timely payments, which many students don’t start making until six months after graduation.