Do Student Loans Affect My Credit Score?

Do Student Loans Affect My Credit Score

BIG Ideas:

  • A credit score is a numerical calculation that lenders use to determine how likely you are to repay a loan.
  • Factors that influence a credit score include your payment history, the age of your credit accounts, your credit utilization, and the types of credit you have.
  • When you apply for a private student loan, which is based on your credit, the lender will pull your credit file, which can lower your credit score. Some lenders, like Brazos, may offer “soft-pulls” so that you can see if you qualify for a loan without impacting your credit score.

We’re always watching scores to gauge performance. Football scores. SAT scores. Video game scores. In the world of borrowing, there’s a super important score that rates your performance in managing your loans: your credit score.

Your credit score is a numerical calculation, ranging from 300 – 850, that helps lenders determine your past performance with credit to assess the likelihood you’ll repay the money they lend to you.

At this point in your life, you may not have a credit score or even know exactly what one is. But, if you’re planning on getting a student loan at some point or are about to enter repayment on loans you already have, you’ll need a crash course.

So, let’s start with an important question: how do student loans affect your credit score?

Or even further, how much do student loans affect your credit score?

To answer those questions, you must understand what makes up a credit score. Let’s unpack that.

Factors that impact a credit score

Several factors affect your credit score, including:

  • Payment history. One of the biggest determinants of your credit score is your history of making payments. So, if you borrow, you must make your payments on time, every time. Late or missed payments will result in a lower credit score, which can impact your chances of qualifying for credit in the future.

    Late payments for federal student loans are usually reported to credit bureaus after 90 days while late payments on private student loans (loans through a private lender) are reported late after 30 days.

    The later your payment, the more damage to your credit score, so if you happen to miss a payment, pay it as soon as you can. Plus, late payments can cost you money in fees.

    If you’re having difficulty making federal student loan payments, contact your loan servicer and ask to change your repayment plan. You could also take advantage of other federal benefits that can help you manage your payments, such as income-driven repayment or deferment and forbearance.

    If you have trouble with making private loan payments, contact your lender or servicer immediately.
  • The length of credit. When qualifying for a loan, lenders want to see that you have a history of managing credit over a long period of time. So, having a student loan that will be with you for several years after you graduate can help you establish and boost your credit.
  • Credit utilization. This is a percentage that indicates the amount of credit you’ve actually used versus the amount available to you. You can calculate your credit utilization by taking your total outstanding credit balance and dividing it by the total credit limit available to you. To express it as a percentage, multiply that figure by 100.

    For example, let’s say you owe $500 on a credit card but have a total credit line of $2,000 available to you. Your credit utilization percentage would be 25%, which represents $500/$2,000 x 100.

    In general, the lower your credit utilization, the better impact it will have on your credit score.
  • The type of credit you have. Another factor that impacts your credit score is your credit mix. Having different types of credit shows lenders that you can manage multiple types of credit. So, if you have a student loan (an installment loan) and a credit card (a revolving line of credit), your credit score will be positively impacted.
  •  Credit applications. Every time you apply for a loan or credit card, the lender will access your credit file to determine your creditworthiness. This is known as a hard inquiry, which can negatively impact your score temporarily. Hard inquiries generally remain on your credit report for two years.

    So, if you apply for a private student loan, the lender will make a hard inquiry, which can negatively impact your credit score. However, many private lenders – including Brazos – will offer to prequalify you so you can see if you qualify with only a soft pull which will not affect your credit. With federal student loans (which are need-based), the federal government does not pull your credit.

    • Because applying for credit impacts your score, don’t apply for a student loan at the same time you apply for credit cards.

Brazos is Here With Affordable Private Loans That Make College Possible

For more than 40 years, Brazos Higher Education has been helping make education more affordable for students. As a Texas non-profit, we offer great rates and no fees on private student loans. Contact us to learn more.