- Lenders will look at your credit score when reviewing your application for a student loan.
- If you're approved, your loan payments will have an impact on your credit.
- Paying regularly and on time will help your credit, while late payments will hurt it.
When you apply for a student loan, lenders will look at your credit score to gauge how risky a borrower you're likely to be. This three-digit number, usually between 300 and 850, tells loan providers at a glance how you've handled debt in the past, with higher scores being viewed more favorably.
The relationship between your credit score and student loan doesn't end with approval, though. How you manage your student loan debt directly impacts your credit score going forward, meaning responsible behavior, like making timely repayments, can improve your score but any late payments can harm it.
Before you take on educational debt, it's key to know exactly how your student loans affect your credit score, what scores are necessary to get approved for different kinds of common student loans, and how to improve your credit so you can increase your chances of getting a loan.
How student loans impact your credit score
The good: on-time payments build positive credit history
Paying off your student loan debt by making complete on-time payments every month shows lenders you can responsibly manage credit and improves your credit score. Your payment history makes up the largest share of your credit score, so every time you pay a bill by the due date you display good credit habits that benefit your score.
The bad: late payments hurt your score
If you fail to make your student loan payment on time or stop making payments, the account can become delinquent and go into collections. This will increase the financing costs you'll pay on the debt and damage your credit score for several years.
Missing a single student loan payment could drop your score between 49 to 82 points, on average, according to VantageScore, the company behind one of the most widely used credit scoring models. Any late payments will remain on your credit report for seven years, but their impact on your credit score will diminish with time.
The balance: your credit mix and utilization matter
Having different kinds of debt benefits your credit score as it shows you can manage various credit accounts well. You ideally want both installment debt, like student loans, and revolving debt, like credit cards. So adding a student loan can help your score by improving your credit mix. A new loan could also hurt your score as it increases the total debt you owe and pushes your debt-to-income ratio higher, potentially indicating you may be overextended and in danger of missing a payment.
Credit scores and student loan applications
Federal loans: no score required (usually)
Most federal student loan programs do not check your credit score or credit report and have no minimum credit score requirements. Federal direct subsidized student loans do mandate that applicants demonstrate financial need for the funds, but federal direct unsubsidized student loans do not.
Federal direct PLUS loans — available to parents and graduate or professional students — operate differently. A credit check will be conducted when you apply, and the government typically requires that you do not have an adverse credit history to qualify.
Private loans: good credit is key
Non-government lenders offering private student loans will always check your credit score and report when you apply. Credit score requirements will vary by lender, but most prefer applicants with scores of 670 or higher.
If you've got a lower score than that, some lenders may still be willing to work with you, but they may charge high interest rates or mandate that you have a cosigner to borrow. The higher your credit score, the better lenders will treat you, meaning you'll typically be approved for the loans you want and pay more favorable interest rates. There are several student loans for bad credit and fair credit, though.
Refinancing: excellent credit gets the best deals
Borrowers with federal or private student loans can refinance student loans to get a lower monthly payment or better interest rate with a private lender. Because this lender pays off your existing debts and replaces them with a single loan with a new interest rate and repayment schedule, they will check your credit score and credit report before approving your application. You'll typically need a score in the mid-to-high 600s to qualify, but the best terms and lowest rates go to those with much higher scores. This means it may not be worth refinancing if you lack a strong credit score.
Tips to improve your credit score for student loans
Pay on time, every time
Your payment history makes up the largest share of your credit score, accounting for as much as 41% of your VantageScore score and 35% of your FICO score. So to raise your score, the best thing you can do is pay your bills in full by the due date. Set up automatic payments through your student loan servicer, credit card company, and other loan providers to have your bill directly debited from your bank account.
Some lenders may also send reminders before a payment is due, but, if not, consider setting them up yourself through your phone or calendar.
Keep credit card balances low
Paying down revolving or credit card debt and keeping it low can help improve your credit score. That's because your credit utilization ratio, or the share of your total available credit you're actively using has a big impact on your credit score. Ideally, you want to keep your ratio below 30%, although FICO suggests aiming even lower, 10% or less, to achieve a top score. For example, if you have two credit cards each with a $5,000 credit limit, you don't want to owe more than $3,000 across both.
Avoid applying for too much new credit
Whenever a lender inquires about your credit report when evaluating an application for a new credit account, your score can drop by a few points. Too many new inquiries over a short time can compound this, as it can be a sign you're experiencing money issues and may not be able to repay the debts. To limit this effect when shopping around for a student loan, aim to complete all your applications within 45 days or less so they're treated as a single new application rather than multiple.
Become an authorized user
The length of your credit history is another important part of your credit score. Generally, the longer you've had credit, the better it is for your score. To extend your own and potentially boost your credit score, you can take advantage of a parent, family member, or loved one's longer positive credit history by becoming an authorized user on one of their credit cards.
In conclusion, your credit score doesn't typically impact whether you qualify for a federal student loan, but if you need to borrow from a private lender it will play a big role, affecting whether you're approved and the amount, interest rates, and repayment terms you're offered. Once you have a student loan, your repayment behavior can raise or lower your score. If you maintain good credit habits, your credit score should be high, meaning you will qualify for the loans you want at more favorable rates, potentially saving you thousands in interest over time.
FAQs on student loans and how they affect your credit
Yes, student loans appear on your credit report and impact your score. Your loan servicer will report your total debt and repayment history to one or more of the three major credit bureaus, TransUnion, Experian, and Equifax, who will add this info to your credit reports. Your credit score will then be generated from those credit reports and regularly updated to reflect how you're managing your student loan debt.
To find your student loan interest rates, review your original loan agreement with your loan servicer or check your monthly loan statements or online account.
Paying off your student loans ahead of schedule can raise your credit score, but not because of the speed with which you repay them. By clearing your loan early, you achieve a history of on-time payments and a lower debt-to-income ratio, all of which credit scoring models look upon favorably. The fact that you made early repayments or paid more than the agreed-upon amount each month does not in itself improve your score.
