Student loans can either help or hurt your credit score — it all depends on what you do with them. They are treated just like any other big installment loan (think a car loan or a mortgage), so how you pay them is a significant part of your credit history.
And here’s how they affect your score:
They can boost your credit score when you are on time.
If you repay each loan instalment on time, then your student loans are actually in your favor. Payment history is the most significant factor in your credit score, and paying on time helps build strong credit over time.
They contribute to your credit mix, which is good.
Credit scoring models tip in its favor if you have a mix of credit types — credit cards, installment loans, and so on. Student loans are considered installment loans; having them can give your score a slight bump because it demonstrates that you can manage more than one kind of debt.
They build long-term credit age.
Student loans remain on your report for many years, which helps establish a long credit history and raises your score.
They will ding your score if you fail to make payments.
Late payments are reported to credit bureaus once they reach 30 days past due — and that can cause your score to nosedive. After your loans are 90 days past due, lenders may report them as delinquent. Most federal loans go into default after 270 days of late payments, and that can be highly damaging to your credit, remaining on your credit report for up to 7 years.
High balances generally — and high installment loan balances in particular — do not typically pull down your score.
Unlike credit cards, the balance you owe on installment loans (such as student loans) does not significantly affect your credit score. But the sheer number of open loans can also make some lenders see you as riskier.
Deferring and forbearing do not count against your score.
If your loans are in deferral or forbearance, either status won’t harm your credit if you’re playing by the rules. You don’t get marked late since there’s no payment due. But your balance will not be reduced, and interest may continue to accrue.
Loan forgiveness or discharge tends to have a neutral or positive effect.
If your student loans are forgiven through a government forgiveness program, not only does that not hurt your credit — it can improve your debt-to-income ratio when you apply to borrow money in the future.
