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Do student loans affect a credit score?

Student loans are a debt obligation just like any other and can affect your credit scores in the same way.

Student loans are a type of installment loan, like an auto loan or a mortgage. An installment loan is a loan in which you receive a specific amount from the lender. You then repay that amount, along with interest and perhaps other fees, with a set monthly payment amount over a period of time, usually a number of years.

If you are paying student loans on time, they will help with your credit scores. If you fall behind on your payments and have delinquencies, they will negatively impact your credit scores. Missing a student loan payment is no different than missing a payment on any other type of debt.

Your payment history is the most important factor in credit scores. Failing to make student loan payments on time will have a very serious effect on your credit scores.

Student loans are a little bit different than other types of debt in two ways. When you apply for student loans, you typically receive a separate loan for each semester or enrollment period. So, if you get a new loan each semester for four years, you would in reality have eight loans.

Once you graduate, you may only make one payment every month that covers the total amount for each of the smaller loans, but each individual loan will appear on your credit report. Because of this, missing even one payment could result in multiple delinquencies appearing on your report, one for each student loan account.

Unlike most other credit agreements, student loans also may change their repayment status during the life of the loans. For example, they may be in deferment while you are in school. The status could change to an “in repayment” status after your graduate. Then, but if you have financial challenges, it could be reported as in forbearance by the lender to help you through that period before returning to a repayment status.

The repayment status can affect how the loans are viewed by lenders and how they are scored by different credit scoring formulas. Student loans may be treated differently by credit scores depending on the current repayment status depending on the payment history, but they still likely will play a part in the lender’s decision when you apply for a new loan.

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Scoped on: 6/1/2017

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