Does the FAFSA Affect Your Credit Scores?

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Need money for college? Then you'll probably want to apply for a piece of the $120 billion in student aid the federal government gives out every year. To see if you're eligible, you'll need to complete the Free Application for Federal Student Aid, better known as FAFSA.

While filling out the form can be a headache, you'll probably be happy to discover that completing the FAFSA will not affect your credit. Here's how FAFSA—and any resulting student loans—impacts your credit scores, followed by a brief introduction to applying for financial aid.

Does FAFSA Require a Credit Check?

If you'd like to receive federal student loans, your first step should be making sure you meet the eligibility requirements. Your second step should be filling out the FAFSA, which will ask questions about your—and, if you're a dependent, your parents'—income and savings.

The one thing it won't ask for? Your credit scores.

That's because, with the exception of parent PLUS loans, most federal student loans don't require a credit check. They are available to prospective students without regard to creditworthiness, and come with a fixed interest rate. (That's why they're the best student loans for bad credit.)

Completing the FAFSA, therefore, won't result in a hard inquiry on your credit report or affect your credit scores in any way.

Private student loans are a different story, as your approval and terms are based on your credit history. So when you apply for a private student loan, lenders will run a hard credit check, which can cause a small, temporary dip in your scores. Read more about private student loans.

How Can Federal Student Loans Affect Credit?

Although federal student loans don't require a credit check, they can affect your credit once you've taken them out. As with all credit products, whether they hurt or help your scores will depend on how you manage them.

Once you've finished school, you'll begin repaying your federal student loans after a six-month grace period. If you make your loan payments on time and in full every month, federal student loans can build your credit by:

  • Providing a history of on-time payments
  • Increasing your average age of accounts
  • Boosting your "credit mix"

If you miss a federal student loan payment by 90 days or more, however, your servicer will report it to the credit bureaus. Not only will late payments negatively impact your scores, but they'll stay on your credit reports for up to seven years.

And, if you don't make payments for 270 days, your federal student loans could go into default. At that point, you'll face a cascade of consequences:

  • Your entire unpaid balance and interest will immediately become due.
  • You'll lose eligibility for deferment, forbearance and additional student loans.
  • Your wages or tax refunds could be garnished.
  • Your servicer could take you to court.
  • You'll cause long-lasting damage to your credit scores.

If you're at risk of falling behind on your student loans, call your loan servicer immediately to see what your options are. Federal loans come with a range of protections, including temporary relief measures and income-based repayment, that can save your credit scores from the detrimental effects of late payments and default.

How to Apply for Financial Aid

The good news: FAFSA won't affect your credit scores. The bad news: You'll have to complete an online FAFSA form every year you need aid. After the FAFSA comes out in October, you should submit it ASAP to meet your school's and state's deadlines.

For a preview of the questions you'll be asked, you can download a free worksheet from the U.S. Department of Education.

The information required will depend on your personal situation. If your parents or guardian can claim you as a dependent, you'll need to supply their financial details too. If you're an independent student, you'll only report your information (plus that of your spouse, if you're married). If you're in a special circumstance, such as not being in touch with your parents, you'll be able to indicate that on the FAFSA application.

As a baseline, you should have your driver's license handy, plus the following for all parties:

  • Social Security numbers or Alien Registration numbers
  • Federal tax returns
  • Bank statements
  • Records of untaxed income

Completing the FAFSA usually takes less than 30 minutes, but if you don't finish it all in one sitting, you can save your progress and return later. Don't forget to double-check all the fields, especially any info that repopulates—and avoid these other common FAFSA mistakes too.

Why You Should Bother Filling Out the FAFSA

College is expensive. And while you should carefully consider how much student debt you're willing to take on, you'll never get a dime in federal grants, scholarships or loans if you don't fill out the FAFSA. There's no obligation, either: Once you've received your chosen schools' financial aid packages, you can always request lower loan amounts so you don't get in over your head.

In fact, even if you don't think you'll qualify for any financial aid, you should complete the FAFSA anyway. FAFSA isn't only relevant to federal student loans; it's also used by states, schools and other organizations when choosing recipients of grants and scholarships—even ones based on merit rather than financial need.

Since filling out the FAFSA is relatively quick—and doesn't affect your credit scores—there's no harm in applying. Just proceed with caution when choosing which loans to accept.