Posted by Debi G Hill, CPA

How Do Student Loans Affect Your Credit Score?

How Do Student Loans Affect Your Credit Score?

Student loans affect your credit in the same way as other loans: you pay according to what is agreed and suitable for your credit; Pay late, and it can hurt you. However, student loans can give you more time to repay before your late arrival.

Student loans are usually installment loans: you pay a certain amount for a specified period. The lender reports this to the credit bureaus, and you begin to establish a track record.

You have the right to see the information held by the credit bureaus. If you pay on time, every time, you'll start to build a solid credit history.

The difference between student loans and other types of loans

Credit bureaus generally treat student loans the same way as different types of personal loans. Therefore, there is no real difference in how the payment of the student loan affects your credit score compared to an auto loan, a mortgage, or even a jet ski loan.

This is because the credit bureaus consider all this as installment debt: they reach a fixed amount, and you pay it with fixed and regular payments. In contrast, revolving debt, like credit cards, differs slightly.

The main difference between rate debt and revolving debt is that the amount of debt you have affects your credit score differently. With a student loan, the amount of your debt does not affect your credit score. However, with a credit card, assuming a high amount of debt can cause the credit score to drop.

This is due to what is called the credit utilization rate, which is the balance of the creditor divided by the credit limit. Suppose you have a credit card with a debt of $ 10,000, but your limit is $ 40,000. The loan utilization rate is $ 10,000 divided by $ 40,000 or 25%.

The loan utilization rate represents 30% of the FICO score and 10% of the Vantage score. Both recommend keeping this percentage below 30%; otherwise, it can start to affect your credit score.

However, with student loans, there is no difference between the amount borrowed and the amount you could borrow; therefore, the use of credit does not come into play.

Here is what you need to know about how student loans can affect your credit score

If you pay late or skip a payment

Forgetfulness sometimes happens, and a little carelessness will not affect your credit. Your score will not start to decrease until the lender reports a late payment to one or, most likely, the first three credit bureaus.

The delay before reporting depends on the type of loan you have:

  • Federal student loans: administrators wait at least 90 days to report late payments.
  • Loans for private students: creditors can report them after 30 days.

However, creditors may receive late fees as soon as a payment is missed.

If the creditor reports the late payment, also called non-payment, it will remain in the credit report for seven years.

The higher the payment, the more serious the credit damage. For example, the federal student loan will default if you do not make a payment for 270 days. This will damage your credit even in the event of a 30- or 90-day default.

  • Failure to do so further damages your credit score. If you can't meet your student loan, you will be charged for it, which is one of the worst things that will happen to your credit score. You will not be eligible for certain types of credit until the default appears in the credit report after seven years.
  • Applying for a private loan can damage your credit. Whenever you apply for a private student loan, the lender performs a rigorous credit check, which affects your score from about six months to a year. The consultation itself remains in the report for approximately two years. That said, most credit bureaus recognize that you can qualify for a purchase if you have multiple contracts and count them.

Missing payments are riskier if you have loans for private students, as they often receive fixed payments, which may be inaccessible at the start of your career. To avoid this, consider refinancing with a lender who offers more flexible payment options or requests a deferral or favorable treatment if it is an option.

Consequences of non-payment of the student loan

Defaulting on your loan means not paying up for a long time, usually months. After your default period, your loan is entered into collections. Here is what could happen if your loan is unpaid:

  • Your loan goes into acceleration: In other words, you will have to pay the balance as soon as possible.
  • Billing fees can be paid: Some student loans have implicit fees, which are usually a percentage of the loan balance.
  • Your transcripts may be withheld by your school: Your academic record belongs to your university, and your school may decide to keep it until the loan is canceled.
  • You will not receive any tax refunds or any federal benefits: If you have a federal loan, the government can withhold the tax refunds and federal benefits that you regularly receive to pay off student debt.
  • Your lender can sue you: It is not uncommon for creditors to sue debtors if other methods of financing do not work. If the creditor wins, you may have to pay the debt to the creditor, in addition to legal fees and other additional costs.
  • You can have bad credit for years: Bad credit makes it challenging to get a car loan, mortgage, or credit card until the default is out of your credit report.


Debi G Hill, CPA
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