How do student loans affect credit scores?

Student loans work like regular loans in that on-time payments can help build your credit score. Since college education is among the first few milestones in a person’s life, on-time payments of student loans are potentially the first major credit activity that can help you build a strong credit score.

These are installment loans where you pay a fixed amount every month. Lenders report these payments to the major credit bureaus and your credit score builds up over time. One of the differences between a regular loan and a student loan is how long creditors wait to report late payments. If you have taken a federal student loan, the late payment is reported at least 90 days after the due date. A private student loan is typically reported after 30 days.

Additionally, if your debt is canceled or reduced due to debt relief schemes, this will positively affect your credit score in the long run. If your account is canceled because of debt relief, your score may dip temporarily, but it also frees up your finances for other potential commitments. If your debt is reduced, you will see a positive shift in your credit score because your account remains active but balances are reduced.