June 11, 2021

How Do Student Loans Affect Your Credit Score?


Your credit score is important because it acts as a marker for financial institutions or lenders to assess your reliability for paying off debt on time. Your credit score can also affect your ability to buy or rent a house, get auto loans, and get hired for a job, which is why you should pay attention to the factors that affect it.

Many things affect your credit score, and your student loans are one of them. In fact, student loans can positively and negatively impact it. Fortunately, as long as you know how student loans affect your credit score, you can take precautions to avoid any negative impact.

How Student Loans Affect Credit Score: The Positive Impact

Taking out a loan doesn’t always mean bad news for your credit score. On the contrary, student loans are one of the most effective ways to improve your credit score over time. Some of the positive impacts that student loans can have on your credit score are:

  • Creates a positive payment history: As mentioned, your credit history affects your ability to rent or buy a home. Your credit score shows your payment history, and if lenders see that you’re not making payments on time, you’ll have lesser chances of renting or buying a home in the future.

You can utilize your student loans to create a positive payment history. As long as you make timely payments in full every month, your student loans can help you build and maintain a good credit score. Your payment history makes up 35% of your Fair Isaac Corporation or FICO score (FICO is a scoring system utilized by many lenders to determine how financially responsible you are), so it’s crucial that you stay on track with your monthly payments.

  • Produces a good credit mix: Aside from your history of payments, financial institutions and lenders will also consider your credit mix. In a nutshell, a credit mix consists of revolving record and installment loans and can speak volumes of your ability to manage different financial obligations. Generally, a steady payment record on different credit types will increase your chances of getting approved for a loan in the future.

Although there are many ways to produce a good credit mix, did you know that acquiring student loans is one of the best methods? In fact, it’s better to have a student loan and credit card rather than having two credit cards. Your credit card mix makes up 10% of your FICO score, which is why it’s important to ensure that your credit score shows different types of loans.

  • Builds a credit history: It’d be challenging for you to present a good credit score to lenders if you don’t have any credit history to begin with. Recent graduates usually struggle to establish a credit history, preventing them from qualifying for any kind of loan. Fortunately, getting student loans can help with this problem.

Since student loans usually have repayment plans that run from 10 to 30 years, getting one can help build and lengthen your credit history. The longer your credit history is, the more loan options lenders will provide to you. Your credit history accounts for 15% of your FICO score.

How Do Student Loans Affect Your Credit Score: The Negative Impact

Getting student loans isn’t a fool-proof solution to improve your credit score. Sure, student loans can positively impact your credit score, but they can also leave negative impacts. The latter is especially true if you become irresponsible in paying off your debts.

Some of the negative impacts student loans can have on your credit score are:

  • Creates negative payment history: There’s nothing wrong with getting student loans (as mentioned, these loans have pros) but missing out on payments can have long-term negative effects on your credit score. Lenders will generally send a report to the national credit bureaus once you miss debt payments by 30 days.

Your payment history makes up for 35% of your credit score, and this information stays on your credit report for seven years. This means that missing one single payment on your student loan can have adverse effects on your credit score that can affect your life for years.

  • Results to default: Neglecting to pay your student loans on time can result in a default. This happens when you’re at least 270 days behind on payment for your federal student loans or 120 days late for your private student loans. Regardless, getting a default for your student loan will show on your credit report and stay there for seven years.

A default negatively influences your ability to borrow money or apply for loans in the future because it shows that you’ve failed to repay credit in the past. This information is enough for lenders to disapprove your request for any loan.

3 Tips To Manage Student Loans

Student loans can improve your credit score, but only if you know how to properly manage them. Student loans offer financial support so you can afford to attend college, but you should also think about their long-term effects. Graduating from college and realizing that you can’t qualify for more loans because of your existing student loans can cause long-term financial stress.

Since you now understand how student loans affect your credit score, it’s time to follow some guidelines to ensure that your student loans only affect your credit score positively.

1. Only Borrow What You Need

Regardless of how tempting it is to borrow more student loan money for your car payment or recreational activities, don’t. You’re expected to think like an adult when you’re in college, so refrain from borrowing an amount for unnecessary spending.

When determining how much to borrow for your student loan, think about the amount you absolutely need to cover your college expenses. Borrowing more money will make it challenging for you to keep up with the payment, resulting in a negative credit score.

2. Pay On Time and in Full

Another way to manage student loans is to ensure that you pay every bill on time and in full. You can make this task easier by placing a note in your calendar or smartphone two weeks before the due date of your loan payment. You can also check several websites to determine if you missed or overlooked debt payments under your name.

Aside from building a positive credit score and payment history, paying your student loans on time and in full will also qualify you for discounts.

3. Graduate

Students usually struggle to pay off their student loans because they have limited sources of income. Sure, they can always look for a part-time job, but not every student has the flexibility to balance their time and energy between school and work.

If you want to keep your loans in good standing, exert time and effort to excel in your academics and graduate on time. It’ll be easier for you to repay any debts once you have a full-time job.

Maximize Student Loans

Loans can either have a good or bad effect on your credit score. As the borrower, you have the power to determine how you let student loans affect this. If you want to build a good credit score, prioritize paying your student loans on time and full. You’ll be surprised how this practice can improve your chances of getting different loans in the future!

Use Chipper for Lower Payments

Chipper can help you find a student loan repayment plan that actually fits into your budget. You simply fill out your information and link your student loan account for us to generate your options in seconds. We help the average student loan borrower save over $300 a month off their student loan monthly payment. Lowering your monthly payment plan can game changing for your personal finance and can be done in minutes! Sign up for Chipper today to get on track with your student loans.

Use Chipper for The Best Path to Forgiveness

Finding your path to student loan forgiveness is easier than ever before. Chipper helps members find better Income-Driven Repayment (IDR) plans every day. Once enrolled in an eligible repayment plan, we can help you explore your forgiveness options and understand your path towards forgiveness. Sign up with Chipper today and get on track with your student loans.

Use Chipper for Round-Ups

Paying off your student loans doesn’t have to be a long and painful journey. Round-Ups are a way to directly pay off your loans with your everyday spending! By tracking your linked spending account(s), we will calculate the rounded up amount from each transaction in a week (IE spending $4.28 would add $0.72 to the weekly amount). We then initiate a payment towards your student loan for the weekly amount. Get chipping away on your student loans with Chipper today.

Use Chipper for Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) program was created to provide relief to borrowers aiding the public sector. Unfortunately, 30% of applicants are denied due to incorrect paperwork. We can help! Chipper was created to solve this issue by assisting borrowers in understanding their options as well as allowing forgiveness eligible users enroll into the best forgiveness program available. Sign up for Chipper today to see your student loan forgiveness options and get the forgiveness you deserve.

Use Chipper for Teacher Loan Forgiveness (TLF)

The Teacher Loan Forgiveness (TLF) program was created to enable teachers working in Title 1 schools to receive student loan forgiveness of up to $17,500 (depending on their teaching subject). Chipper has helped teachers from all over the country qualify for TLF program and can help you get the forgiveness you deserve today. Find out if you qualify for forgiveness in minutes with our employer search tool.

See How Much You Can Save with Round-Ups

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