Money Management for College Students: Do Loans Affect Your Credit Score?

Time To Read 2 MIN READ

Long-Term Payment History

Student debt doesn't have to crush your credit score.

When you look at the breakdown of credit score factors, the biggest – at a whopping 35 percent – is your payment history. If you're still in school and not yet making loan payments, your credit score won't suffer. However, when you get out, the responsibility of making the payments falls on your shoulders. If you miss payments or fall behind regularly, you can do some serious damage to your score. "The good news is that if you are diligent about making the payments – in full and on time – you'll really give your credit score a lift," says Massie.

Student Loan Debt Level

Student loans are installment loans, which means having a balance isn't as bad as carrying a large balance of revolving debt, like credit cards, when it comes to your credit score. But it's still a debt you have to repay, so it will hurt your score, especially at the start. The news gets better over time, assuming you're paying down your loan, because your score improves as the remaining balance gets smaller. So, though you might still have $10,000 of your initial $25,000 of student loans remaining, you can celebrate that paying down $15,000 gives your credit score a bump.

Length of Credit History

If you didn't get a credit card, a student loan might be the first loan that gets your credit report started. How long you've had credit makes up 15 percent of your score, and it includes the age of your oldest and newest accounts, the age of certain types of accounts and how long it's been since you've used various accounts. The longer you've had your student loans and, of course, paid on time, the more you show that you're a responsible borrower and improve your credit score.

Extra Types of Credit Used

One of the smaller factors in your credit score is the variety of credit types you've used, accounting for just 10 percent of your score. Every little bit helps when you're trying to qualify for that lower interest rate on your car loan or mortgage. Plus, it's more important when your credit score doesn't include a lot of other information, such as when you might only have one student loan and one credit card after you graduate, according to the Fair Isaac Corp., which created the FICO credit score used by all three major credit score companies. Since it's an installment loan, your student loan shows that you can handle fixed borrowing in addition to just revolving debt like your credit cards.