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How student loans affect your credit score

How Student Loans Affect Your Credit Score​: 7 Essential FAQs

Got student loans? We’ve got you covered with our Student Loan Smarts blog series. Our expert tips and hacks will help you save money, pay off loans sooner, and stress less about student loan debt. Read the other posts in the series to get all the info you need to make intelligent decisions about your student loans.

Student loans are the ultimate double-edged swords. Invest wisely in your education, and those loans should pay off in the form of higher income over time. But if you mismanage student loan debt, your credit score could suffer—and that could have a big impact on your financial future.

As a student loan lender, we get a lot of great questions about how student loans affect credit score. Here are the top seven.

1. Do I need a good credit score to take out a student loan?

The answer depends on whether you’re talking about federal or private student loans.

Federal loans don’t take credit scores into account, which is why every borrower gets the same interest rate regardless of financial profile. However, federal PLUS loans do require that borrowers not have an adverse credit history, which is defined by FinAid as “being more than 90 days late on any debt, or having any Title IV debt within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or write-off.”

Related: 5 Tips for Getting the Lowest Rate When Refinancing Student Loans

For private lenders, your credit score is usually a key factor in determining not only student loan approval, but also the attached interest rate. In other words, the better your score, the better your rate. But SoFi does things a bit differently—our non-traditional underwriting process looks beyond your credit score to take into account factors such as education and career. This allows us to provide competitive interest rates on student loan refinancing.

2. Which credit scores do lenders use?

Most private student loan lenders use FICO credit scores to determine whether to extend credit and at what interest rate. Since FICO is used widely throughout the lending industry, including by mortgage, auto loan, and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.

3. How is my credit score calculated?

Unfortunately, how FICO calculates your credit score is kind of a black box. While the various factors and weightings used in the calculation are publicly available on FICO’s website, its algorithm is proprietary, which means that no one can predict exactly how a specific financial event will affect your score. For example, a late payment will likely reduce your score, but by how many points is anyone’s guess.

That said, there are generally three key ways to improve your credit score: pay bills on time, keep credit card balances low, and reduce the amount of debt you owe.

4. How does a late student loan payment affect my credit score?

Making payments on time is obviously important, but what you might not realize is exactly how damaging it is to not pay on time. Even if your credit history is pristine, it only takes one 30-days past due report to cause a material change in your score. Whether you were short on cash or just simply forgot, the FICO algorithm doesn’t distinguish—and the result is the same.

Recommended: How to Choose Between Variable and Fixed Rate Student Loans

So, if you have trouble remembering to make your payments, set up an automatic payment plan; most lenders will give you a small discount on your interest rate for doing so. When you know you can’t make a payment on time, talk to your lender or loan servicer right away. Most federal loan lenders and some private lenders offer loan deferment and/or forbearance, allowing you to temporarily suspend payments, which will minimize the impact on your credit score. But remember, there’s absolutely nothing your lender can do to help if you don’t return their calls.

5. Will shopping around for a better student loan interest rate hurt my credit score?

We hear this question a lot from grad school borrowers and those refinancing student loans to get the best interest rate possible on a private loan.

One factor that can be a red flag for FICO is the number of inquiries it receives from lenders wanting to see your credit report. In other words, if it looks like you apply for more credit often, it could negatively impact your score. But the good news is that FICO attempts to distinguish between a request for a single loan and a request for many new credit lines. As long as you rate-shop in a concentrated period of time, you should be okay.

If you really want to avoid inquiry overload, do your homework before applying for a loan. Private lenders typically list online the range of rates they offer, as well as general eligibility criteria. Researching that info will give you a good idea of whether you’ll qualify before you formally apply. Also, be sure ask lenders if they can tell you the interest rate you would receive without doing a “hard” credit pull, which might affect your score. You can’t get a loan without an eventual inquiry, but this service allows you to compare interest rates worry-free before applying for a loan.

6. Will refinancing student loans help my credit?

Refinancing student loans at a lower interest rate can have an indirect positive impact on your credit. For example, refinancing may lower your monthly payments, making it less likely you’ll miss or be late with a payment. And if you refinance federal loans with a private lender (in effect, turn your federal loans into a private loan), rest assured that credit bureaus don’t view these two types of loans any differently.

7. Will paying off student loans too quickly damage my credit?

Some people reason that because education debt is “good debt,” FICO must view it more favorably than other types of debt. And because credit scores can be improved by having open accounts that are paid on time, they think that paying off a student loan early might actually work against their score. But, while there’s no definitive answer to this question (remember: black box), there are a few things to keep in mind before buying into this belief.

Read Next: Student Loan APR Vs. Interest Rate – 5 Essential FAQs

First, FICO doesn’t see your student loan debt as being good or bad. In fact, the agency doesn’t distinguish it from any other type of installment debt, such as mortgage or auto loan debt. Incidentally, while installment debt is different from revolving debt (like credit card debt), it’s generally better to have positive track records with both of types of loans.

Second, it’s true that FICO likes to see how you manage your debt. So, if you have an open account in good standing, that could help your score—but the impact would likely be small. And closing any account satisfactorily is generally a positive thing for your credit, so that could help your score, too.

Bottom line: Instead of worrying about how prematurely paying off your student loan will impact your credit score, consider the potential trade-offs. For example, how much extra interest are you paying by leaving the account open? Also, a high loan balance may make it harder to qualify for new loans—something to think about when it comes time to buy a home.

Take care of your credit score

Credit is a powerful tool that can allow you to do a lot of great things, but if you’re not careful, it can hold you back. For many people, student loans represent their first experience carrying a large debt load, which means mistakes are almost inevitable. The most important thing you can do is learn how to take good care of your credit score—and eventually, it will take care of you, too.

Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.

SoFi Lending Corp. is licensed by the Department of Business Oversight under the California Financing Law, license number 6054612. NMLS #1121636. Terms, conditions, and state restrictions apply; see

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ABOUT Anna Wolf Anna Wolf is a financial writer and content strategist based in San Francisco. After 10+ years of writing, thinking and talking about personal finance and investing, she still learns something new every day.

21 thoughts on “How Student Loans Affect Your Credit Score​: 7 Essential FAQs

  1. Not sure about the consolidation not affecting your score. I consolidated my federal student loans and my score went up by 30 points.

  2. These are great tips! I defaulted on my student loan from 1999 and didn’t start repaying them until 2008 when I signed up for the student loan rehab program. I have since payed down a 16K loan to now only owing about $1,200.00. It was the smartest thing I’ve ever done to help my credit score.

  3. I have 1 private loan with sallie mae & a federal student loan with nelnet can I combine them some how or refinance?

  4. I agree with “LT” If you have 20 loans consolidated into one loan it will help your score. Having too many loans open hurts your score.

  5. I disagree with the information in question #4. I consolidated my two (2) student loans in May of this year; both loans were in good standing. My credit score dropped by 30 points, from 747 to 717. It has remained at 717 for four months now. I haven’t have any other credit use changes whatsoever.

    This is a significant drop that has financial implications; i.e., a significantly higher interest rate (≥ 1%). I am approaching retirement and need a “new” car sometime before I retire. My mortgage lender offered its customers a 2.5% reduction in my rate IF their credit scores were at/above 720.

    Had I known that my credit score would take such a significant hit, I never would have done it.

  6. Kathy Rinehart says:

    I’m in the process of applying for a mortgage, and my bank required me to consolidate all student loans before applying. If consolidation would impact my score negatively, it wouldn’t make since. We’ll see what happens. Consolidation will be completed Aril 14, 2016. I’ll keep you posted.

  7. I have a pending student loan consolidation as well. I had over 20 loans (from undergrad and grad). I’ve been monitoring my credit report and some of them are showing paid off, and others are still pending. The “new” consolidation loan hasn’t hit my credit yet, and my credit score appears to have dropped 18 points so far. Granted, I am monitoring my credit using the “not so accurate” Credit Karma”. So, I’m not sure how true this is. I will wait until the consolidation is complete before I check my real credit report. *crossing fingers that my already low credit score doesn’t suffer too much more*

  8. I just refinanced my student loans through you and my credit score went down 40 points because by refinancing it killed my oldest credit account (the previous student loan) so the average life of my loans decreased.

    • Kevin,

      This just happened to me over the past 2 weeks. My oldest credit account went from 9 years to 9 months. Now, it looks like I do not have credit history. I have a 700+ credit score and now I could not even receive a simple credit card.

      Does anyone have any advise on how to address this issue?

  9. So, I have a question that I can’t seem to get an answer for. If So-Fi buys my Federal Student loans that have been consolidated years ago will those loans turn into Private loans bought buy So-Fi and no longer under government control??

  10. Gregory Dawson says:

    Can my Student loans be refinanced or consolidated if m y loans are in default

  11. How does Sofi treat student loan debt when it comes to debt to income – based on 1% of balance or based on the actual monthly payment? I have substantial debt, but I am only required to pay 10% of my discretionary income for 10 years, at which time the balance is forgiven tax-free (public service forgiveness).

  12. I have a substantial amount of student loan debt (2 advanced degrees), but have 700+ credit and an above average salary for my region (70K). Having said this, there are two ways that most of the mortgage lenders I have researched treat student loans when calculating debt-to-income: (1) 1 percent of the entire balance is used to represent monthly debt or (2) actual payment made each month (even if on an income based plan). Note that I am a public servant who not only benefits from an income based plan, but also from tax-free debt forgiveness after 10 years or 120 on-time payments. Obviously, the actual payment method benefits me greatly whereas the 1 percent calculation misrepresents my actual monthly recurring debts in a major way. So, how does Sofi treat my situation?

  13. So I specifically searched “why do student loans drastically reduce my credit score” and I came across this article at the top of my Google search. Unfortunately, it tells me NOTHING about why it caused my credit score to drop approximately 90 points as soon as a new student loan hit my credit report. So you need to add this information if you are forcing yourself to be at the top of search results, seemingly surreptitiously, for the information you don’t even mention. It is the utmost importance for people to understand what is going to happen as soon as they get a NEW student loan. Or I need to report to Google Analytics that your site is not imparting the information for which it is at the top of the search results.

  14. Kristi K Mason says:

    Hi. I had my student loans in deferment since graduating school in 2012. I ended my deferment and just made my first payment, early. I got a notification from credit karma that my score had dropped. I checked and my Transunion score dropped 62 points! Upon further investigation it was Navient (who handles my student loans) removing remarks that my loan was in deferment and of course adding the capitalized interest back to my loans. I am so confused. I finally start repaying my loans on time and it hurts my score? I called Navient and they said they did not report any negative information just updated the status from in deferment to being paid on time. I am so upset! What do I do? Also, my Equifax score only dropped 3 points due to the same information but my Transunion score drops 62?

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