Do Student Loans Affect Your Credit Score?
Bills Bottom Line
Student loans affect your credit score because both federal and private loans end up on your credit reports. Payment history counts most. On-time payments are expected, and a single late payment can tank your score. Your student loan lender can report a missed payment once it's 30 days late on a private loan or 90 days late on a federal loan.
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You have student loans, or soon will. On one hand, you worry that missing a payment could hurt your credit score. A damaged credit score makes it trickier to shop for a car, a house, or an apartment. On the other hand, you hope that taking out a student loan and making payments could improve your score.
First thing's first. Your lender reports your student loan to credit bureaus when your lender disburses your loan. That means your loan could be reported long before your first student loan payment is due.
How a student loan affects your credit score is a little more complicated. Much of it boils down to whether you make timely payments.
Bills is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.
How do student loans affect your credit score?
Federal and private student loans are reported to the credit bureaus and affect your credit score.
On your report, a student loan is listed as an installment loan. This means there are set monthly payments over a fixed term. Lenders often pay a student loan out in parts, one payment each school term. Each payment may show up as its own account. One monthly bill can appear as several lines.
Credit scoring company FICO evaluates five factors when generating your score:
- Payment history (35%). Each on-time payment maintains it. A late one hurts it.
- Amounts owed (30%). What you still owe, against what you first borrowed.
- Length of credit history (15%). The loan's history begins when the lender wires the loan money. Sometimes, this is long before you make payments. If you've never had credit, taking a student loan could quickly put you on the map.
- Credit mix (10%). A student loan adds installment credit to your mix. If you have no other installment loan, this could positively impact your credit score.
- New credit (10%). A private student loan application may trigger a hard inquiry. A hard inquiry is a credit check that could impact your credit score.
Does missing student loan payments hurt your credit score?
Yes, once your lender or loan servicer, the company that sends your monthly bill, reports the payment as late, your credit score could drop.
When a missed payment can reach your credit report
- 1 to 29 days late, any loan: Credit reports have no late status for this, so your account may still show as current. You may be charged a late fee.
- 30 days late, private loan: The lender can report the payment as late.
- 90 days late, federal loan: The lender reports the payment as late.
Once your student loan payment is reported as late, your score could drop. If the payment remains unpaid, your score may dip again at 60, 90, and 120 days past due. On a federal loan, the first dip happens at Day 90.
How much a late payment hurts your credit depends on the rest of your report. A first late payment on a good record could hurt more than one more late payment on a record that already has several. If one missed bill puts several student loans behind, scoring models may treat them as a single late payment.
An accurate late payment stays on your report even after you catch up. That said, paid-off accounts look better than accounts you still owe.
Student loan pauses and forgiveness
Deferment, forbearance, and income-based repayment plans can help you pay off your student loans. Deferment and forbearance can pause your payments for several months without hurting your credit. On an income-based repayment plan, each on-time payment still contributes to your payment history, even when the payment is very small.
How does a defaulted student loan affect your credit?
Credit bureaus note a defaulted student loan on your credit report. This record is separate from late payment records and is likely to damage your credit score.
You default on a federal Direct Loan or Federal Family Education Loan (FFEL) after 270 days. Your lender could declare you in default on a federal Perkins loan after a single missed due date. If you don't prevent the default, the U.S. Department of Education reports it to the credit bureaus.
Though details depend on the lender, many private loans default after three missed monthly payments. Lenders typically charge off the loan at 120 days past due, writing it off as a loss. At this point, you still owe it. If a debt collector buys the debt, a collection account appears on your report. Collection accounts negatively impact your credit score.
How does rehabilitation show on your credit report?
Federal student loan rehabilitation, one way to recover from a student loan default, removes the record of your default from your credit report. This could improve your credit score.
However, rehabilitation doesn’t remove the record of your late payments, the payments you made to collections while you were in default and going through rehabilitation. These late payment records might continue to impact your credit. They remain on your credit report for up to seven years.
How do you remove a defaulted student loan from your credit report?
Enrolling in loan rehabilitation is the only way to remove a defaulted student loan from your credit report, assuming the default record isn’t a clerical error. The federal government offers student loan rehabilitation. Private lenders may offer rehabilitation programs.
If you didn’t default on a student loan but there’s a record of default on your report, file a dispute with the credit bureau that created the report and the company that reported the default. Both must investigate for free within 30 days, or 45 if you send new relevant information during that time. You can file a dispute with any credit bureau for free online.
How long do student loans stay on your credit report?
Most negative entries, such as student loan defaults, stay on your credit report up to seven years. An exception is a default on a Perkins loan, which remains on your report until it’s repaid. A loan paid off in good standing can remain on your report for longer than seven years: however long the bureaus deem appropriate, often 10 years.
The seven years usually begin about 180 after your last missed payment due date. The seven-year clock doesn’t reset if and when your account ends up in collections.
| Entry | How long it can stay |
|---|---|
| Late payment | Up to seven years from the date of first delinquency |
| Private loan in collections or charged off | Seven years, starting 180 days after the date of first delinquency |
| Loan paid off or closed in good standing | Typically up to 10 years after it closes |
| Perkins loan | Until it's paid in full |
Recent entries impact your report the most. Your score may improve long before the entry falls off your credit report because credit scoring brands care less about a default six years prior than the default yesterday.
Does paying off student loans help your credit score?
In the short run, your score might dip. Credit bureaus may ding you for lacking an installment loan and shrinking your credit history, averaged between your credit accounts. In the long term, a paid-off student loan is likely to help you get loans. It’s evidence that you will pay back your loans.
If your student loan is past due when you pay it off, your score might rise, and you will no longer be in danger of defaulting, something that would likely damage your score.
Once your student loan balance reaches zero, the account closes. The closed account stays on your report for some time, typically 10 years. Lenders who check your report will see that you paid off a student loan successfully and made timely payments.
Bills is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.
Bills Action Plan
- Check each credit report. Get free weekly reports from all three bureaus at AnnualCreditReport.com. If a loan is listed wrong, dispute it.
- Call your servicer or lender before you miss a payment. For a federal loan, find your servicer under "My Aid" on StudentAid.gov. Ask about a deferment, a forbearance, or a new repayment plan, and keep paying until it's approved. If you can't pay at all, tell your servicer: federal loans have affordable repayment options.
- Pay every bill on time from here. Autopay can help. Paying bills on time is necessary for a good credit score, which makes it easier to qualify for the best credit cards, loans, and rentals.
Key Terms
Installment loan: A loan paid out at once and repaid in set payments over a fixed term, like a student loan.
Payment history: Your record of paying on time or late, the factor most scores weigh most.
Default: The status a loan reaches after too many missed payments.
Loan rehabilitation: A federal method to recover from a student loan default.
Date of first delinquency: The date of your first missed payment.
Credit mix: The kinds of credit you have. It makes up 10% of a FICO Score.
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Does a student loan depend on credit score?
Federal student loans typically don’t depend on credit score. The government doesn’t check your credit score when deciding whether to offer you a student loan. An exception is a PLUS loan. A PLUS loan, such as a parent PLUS loan, checks your credit history for things like late payments.
Private student loans often do depend on credit score. These might require an established credit history or a co-signer with an appropriate credit score.