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How Do Student Loans Affect Your Credit Score?

By Ashley Kilroy · November 11, 2021 · 6 minute read

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How Do Student Loans Affect Your Credit Score?

One upside of having a student loan is that regular on-time payments may boost your credit score and even allow you to build a credit history that could help when it comes time to get a mortgage or take out a car loan. That being said, much of how student loans affect your credit score can depend on how you manage your student loans: Do you make your payments on time? Have you missed any payments?

Here’s a look at how student loans affect your credit score, plus a deep dive into the other questions you may have surrounding student loans and credit score.

Do I Need a Good Credit Score to Take Out a Student Loan?

Whether or not you need a good credit score to borrow student loans depends on whether you’re talking about federal or private student loans.

Most federal loans don’t take credit scores into account, which is why nearly every borrower gets the same interest rate regardless of financial profile. However, federal PLUS loans for parents require that borrowers do not have an adverse credit history.

For private lenders, your credit score is usually a critical factor in determining student loan approval and the attached interest rate. In general, the better your score, the better your rate.

Which Credit Scores Do Private Lenders Use?

When calculating how various debts, like student loans, affect a credit score, most private student loan lenders use a base FICO® score, which ranges from 300 to 850, to determine whether to extend credit and at what interest rate.

Because 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.

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.

A late payment on your student loans will affect your credit, likely reducing 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.

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What Student Loan Factors Affect My Credit Score?

So, how exactly does a student loan affect your credit score? Well, when FICO creates your credit score, it takes loans into consideration. Not only that, it evaluates your payment patterns thus far on any loans.

That means if you fail to repay or continually pay late on your loan, your credit score will see a dip. The more you fall behind, the harder the hit to your score. If you stop paying at all, or default, then you may even face consequences.

However, student loans can also positively affect your credit score. A responsible debt owner may experience no credit changes or even see positive shifts, such as if they continually make on-time payments.

Here are the main factors to look for that could impact your credit, in either direction:

•   Making late payments (delinquent loans)

•   Failing to pay at all (defaulting)

•   Expanding your credit mix

•   Lengthening your credit history

•   Owning credit

•   Applying for new credit

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 report of 30 days past due to change your score. Whether you were short on cash or simply forgot to make the payment, the FICO algorithm doesn’t distinguish — and the result is the same. One slip-up on your student loans can affect credit, ultimately.

FICO base scores are determined by data in five categories, and payment history leads the pack:

Score Category

Weight in Scoring

Payment History 35%
Amounts Owed 30%
Length of Credit History 15%
New Credit 10%
Credit Mix 10%

Once a late payment is reported to the credit bureaus, it could remain on your credit report for up to seven years.

If you have trouble remembering to make your payments, you might want to set up an automatic payment plan. Most lenders will give you a small discount on your interest rate for doing so.

When you know that you can’t make a payment on time, talk to your lender or loan servicer right away. The U.S. Department of Education, which is the lender for four types of Direct Loans, and some private lenders offer loan deferment and/or forbearance, allowing a borrower to temporarily suspend payments, which will minimize the impact on your credit score.

One of the purposes of a credit score is to show lenders how likely you are to repay your debts. Making your student loan payments on time and in full each month will likely have a positive effect on your credit score.

Will Rate Shopping Different Student Loan Lenders Hurt My Credit?

This question pops up a lot from grad school borrowers and people who are 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 hurt 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 OK.

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 information will give you a good idea of whether you’ll qualify before you formally apply.

Also, you may want to 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 hard inquiry, but getting prequalified allows you to compare interest rates with no effect on your credit score.

Will Refinancing Student Loans Help My Credit?

Refinancing student loans at a lower interest rate can have an indirect positive effect on your credit. For example, if refinancing lowers your monthly payments, that may make it less likely you’ll miss or be late with a payment.

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. Keep in mind that when you refinance your federal loans you will lose certain federal protections, such as repayment plans and loan forgiveness.

Does It Hurt to Pay Off Student Loans Quickly?

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.

There’s no definitive answer to how early payments play into your score, but keep a few things to keep before buying into this belief.

First, FICO doesn’t see your student loan debt as good or bad. 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 best to have a positive track record with both 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 could affect your credit score, consider the potential tradeoffs. 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, which is something to think about when it comes time to buy a home.

Notorious Big Bad D’s: Delinquent and in Default

Student loans affect credit scores in a variety of ways, but the worst thing you can do is ignore your monthly loan payment. If you are even one day late with your payment, you’ll be considered delinquent and be charged a penalty for missing that payment.

Once a missed payment is more than 90 days delinquent, your loan servicer will report it to the three major national credit bureaus. This could lower your credit score and hurt your ability to get a new credit card or qualify for a car loan or mortgage.

After 270 days of a missed student loan payment, your status changes to default and your student loans are due in full with any accrued interest, fines and penalties.

The Takeaway

Most student loan holders don’t love having that debt, but making steady, on-time payments helps build creditworthiness, which eases the way for future borrowing opportunities and attractive interest rates. Plus, there are several options for repaying your student loans and keeping negative information from affecting your credit score.

For example, SoFi offers competitive rates to refinance student loans. If you now have a better financial profile than when you took out your loans, you may be able to save money over the life of the loan if you qualify for a lower interest rate.

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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Disclaimer: 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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.

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