How Do Student Loans Affect Credit Score ?

The student loans Americans owe are more than what they do on credit cards. But how does that affect the rest of their financial lives? Does it become difficult to buy a home or car? What about their credit scores?

As you probably know, a credit score can increase or decrease your chances of applying for a home mortgage, auto loan, and even specific jobs. And that’s why it’s essential to know if student loans can affect your credit score.

Now, student loans can affect your credit scores in many ways. Some of which might surprise you. Let’s find out more in this guide.

How Do Student Loans Impact Your Credit Score?

First of all, student loans are categorized as installment loans. That means it comes with a starting balance that you repay over time with a series of payments that are fixed. Auto loans and home mortgages are usually included in this category.

All installment loans have the same treatment when calculating the FICO credit score. So there’s no special consideration for student loans, and they don’t come with their category. Also, it doesn’t matter if you have federal or private student loans. They all get the same treatment.

However, your credit scores won’t get damaged by a lot of these installment loans themselves. Debt usage, which is your credit utilization ratio, covers only 30% of your score. But remember that the debt usage is only based on revolving credit like credit card debt, not installment loans.

So it’s far worse for your credit score to have $60,000 in credit card debt than student loan debt. So it’s possible to have $50,000 in student debt and still have a good credit score.

Student Loans Could Affect Your Debt-to-Income Ratio

Of course, we’re not saying that the balance on your student loans has no impact at all. Let’s take an example. Let’s say you apply for a mortgage. The lender might look at your debt-to-income ratio, and it can be difficult to get approved if you have vast sums of debt.

By the way, the debt-to-income ratio refers to the amount you pay monthly compared to your income total amount.

Generally, with installment loans such as student loans, balances aren’t the primary concern. Instead, it’s the payments that count.

Everything Hinges On your Student Loan Payments

You can have an excellent credit score as long as you make your payments in full and on time. Unfortunately, your payment history takes 35% of your FICO credit score. That means if you delay one payment, your credit score can significantly drop.

But remember that how much your credit score drops depends on several factors.

Defaulted Loans Can Greatly Hurt Your Credit Score

When you have student loans in default or collections can massively hurt your credit. But a few days behind your payment won’t affect your credit score, probably. But if you get 30 days or more behind on your private student loans, it can show on your credit report.

 For federal student loans, your late payments get reported to the credit bureaus after being in delinquency for 90 days. But your scores won’t get hurt if you’re in deferment for both federal and private loans.

If, for some reason, you can’t make payments, consider the various student loan forgiveness and repayment options. That can help you make affordable payments on time and get your loan forgiven.

Ways Student Loans Can Improve Your Credit Score

1.   Student Loan Account Can Increase Your Credit Mix

The credit mix is part of the FICO credit score calculation. The credit mix is the different kinds of lines of credit or loans you have. For example, having both revolving and installment loans on your credit report can help you improve your credit score.

Even though the credit mix is just 10%, it can give you a slight push if both debts appear on your credit report. But it’s not advisable to avoid paying off your student loans because you have a credit mix.

2.   Student Loans Can Extend Your Credit History

The length of credit history is 15% of the credit score. Since student loans are usually linked to long repayment periods, they can help you build a healthy credit report. But it’s also advisable to pay off your student loans quickly.


Even though you can find ways to improve your credit score, it’s always better and advisable to quickly pay off your student loans. If you’re having challenges paying off your student loans, you can opt for various student loan forgiveness and other repayment plans.

If you don’t know which route to take, you can always ask an expert.

About the author

Venkatesan Prabu

Wikitechy Founder, Author, International Speaker, and Job Consultant. My role as the CEO of Wikitechy, I help businesses build their next generation digital platforms and help with their product innovation and growth strategy. I'm a frequent speaker at tech conferences and events.

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