How Do Student Loans Affect Your Credit Score?

Lamine Zarrad
March 11, 2022
3 mins

The cost of higher education in the United States has skyrocketed over the past few decades. Since 1980, the average college tuition has increased an astounding 120%. It’s no surprise nearly one-third of students take out loans to help pay for their degrees. 

Student loans are often one of the largest debts we take on in our lifetimes, and they can have long-term implications for our credit history. Read on to learn how student loans affect your credit score – and how to repay yours wisely. 

How do student loans affect your credit score? 

Student loan servicers report your account activity to the national credit bureaus. If you pay yours back responsibly, your credit score can improve. But if you pay late or miss payments, your credit score can drop significantly. 

Does paying student loans build credit? 

Student loans affect your credit score in many ways. Since you pay them back over several years, student loans provide a chance to establish a strong history of on-time payments. They can also help diversify your credit mix (the variety of loans in your credit file). 

If you’re like many young borrowers, however, your student loans may represent all or most of your personal debt. This means negative account activity can affect your credit score more than someone with a longer, more established credit history. 

What are the consequences of missed student loan payments?

You’ll be penalized for missing payments on your student loans. In the short-term, this can mean late fees and negative marks on your credit report. If you don’t get caught up, your loans may go into default – which has serious long-term consequences. 

If your loans go into default, you’ll be ineligible for student aid and financial relief programs like deferment or forbearance. Student loans affect your credit score negatively when they default, too. Because default loans show up on your credit report for up to seven years, you may have difficulty getting approved for new loans and lines of credit. 

If you’re having trouble making your student loan payments, reach out to your lender before they go into default. You may have repayment options that reduce your monthly bill and make it easier to pay on time. 

Can student loans affect a co-signer's credit score?

Many college-aged students don’t have enough credit history to prove they’re a trustworthy borrower. This isn’t an issue for federal student loans, which usually don’t require credit checks. But for private loans, you may need a cosigner to assume joint responsibility. 

If your co-signer has excellent credit, you’re more likely to be approved and receive a lower interest rate. But if you miss payments or pay late, your co-signer’s credit can take a hit. 

Since private loans offer fewer debt assistance options than federal loans, they come with a greater financial risk. That’s why it’s recommended to maximize federal loan options before turning to a private lender. 

How does refinancing student loans affect credit scores?

Student loan refinancing allows you to gather all or some of your loans into one new loan, often at a lower interest rate. This may cause your credit score to dip a few points in the short term, but can be beneficial for your long-term credit history. 

When you refinance, you’ll often have a lower monthly payment and pay less over the lifetime of your loan. This can reduce financial pressure and make it easier to pay on-time (a key factor in your credit score). 

Unfortunately, you’ll have fewer options than with federal loans if you’re unable to afford your monthly payment down the line. That’s why refinancing is most valuable to people with private loans or rock solid finances. 

Can I buy a home if I have student loan debt?

Lenders look at your income and total debt level when deciding whether or not to approve you for a home loan. Student loans can play a major factor in your debt-to-income ratio, a figure that helps lenders determine if you’ll be able to afford your monthly mortgage. But if you’re in a healthy financial position, you can absolutely buy a home if you’re still paying off your student debt.

The bills you pay should pay you back

Student loan servicers report to the national credit bureaus; that’s how student loans affect your credit score.  But other expenses, like your rent, phone payments, and subscription fees don’t get reported – even if you always pay on time. 

With Stellar, you can build credit history with rent payments, your phone bill, and even your Netflix or Amazon Prime subscription. You pay all these bills every month, you should get some credit for it!

Get started with StellarFi

Signing up is easy. The more bills you link, the more impact you’ll have on your score. Ready to check it out?

The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.

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On-time payment history can have a positive impact on your credit score. Nonpayment may negatively impact your credit score. StellarFinance, Inc. will report your on-time payments to Experian®, Equifax® and TransUnion®. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.