App version: 0.1.0

How Student Loans Affect Your Credit Score

How Do Student Loans Affect Your Credit Score?
Jennifer Calonia
Jennifer CaloniaUpdated February 2, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
You may not realize it, but taking out student loans has an impact on your credit score. The effect can be good or bad, depending on how you repay your loans. If you are a responsible borrower and make your payments on time, student loans could help strengthen your credit over time. But if you fall behind on payments, there could be repercussions. Learning about student loans and credit scores can help you make smart choices as a student loan borrower. Here’s what you need to know.

Can Student Loans Affect Your Credit Score?

Student loans do affect your credit score. Here’s why: A loan is a mutual agreement between you and a lender. It allows you to borrow money for goods and services — like paying for your education — with the promise you'll pay it back. Student loans typically go on your credit reportThis means that any activity related to your student loans, including the amount of student debt you take on and your repayment habits, can impact your credit. Repaying is especially important when it comes to student loans and credit scores.

Does Paying Student Loans Build Credit?

How do student loans affect a credit score? The biggest impact student loans have on your credit is through your payment activity. A commonly used credit scoring model, the FICO® score, bases 35 percent of your credit score calculation on payment history — this is the largest factor for determining your score.If you’re wondering, does paying student loans build credit?, it does. Paying student loans helps build credit, strengthening your score as you chip away at your debt. However, late payments, paying less than the agreed-upon amount, or missing payments brings your score down.

How Does Defaulting On Student Loans Impact Your Credit Score?

Defaulting on student loans can have a significant negative impact on your credit. If you default, the information remains on your credit report for seven years. During this time, your credit score will likely drop considerably, and you’ll likely have difficulty getting approved for new credit.If you’re still pursuing your education and you need a private student loan for the upcoming academic year, you may not be able to get one. You might also have trouble renting an apartment. If you default on a federal student loan, you might be ineligible for future federal student aid until you’ve addressed the default. In addition, the government could garnish your wages or tax refund. You may have the option of negotiating student loan payoff if you’re in that position.

How Paying Off a Student Loan Account Affects Your Credit

Paying off a student loan could help keep your amount of outstanding debt at a manageable level. With FICO® scores, 30 percent of your score is based on the amount of debt you owe. Repaying your loans helps lower the amount of debt you have.If your account was overdue and you pay it off, your credit might strengthen. But if your account was always in good standing, you may not see all that much of an increase in your score.In fact, paying off a student loan account that was in good standing might actually lower your score temporarily. That’s because once the account is closed, its positive payment history doesn’t factor into your score as much as it once did.  However, the drop is typically short-term — generally a month or two — as long as you make on-time payments for any other accounts you have.

Can Student Loan Forgiveness Impact Your Credit?

If you receive full student loan forgiveness, your credit score may be affected in the same way it is when you pay off student loans on your own. The account will be reported as closed and satisfied in full by your loan servicer. As a result, the account will generally not count as heavily toward your credit score. While this might result in a temporary slight drop in your score, as noted above, your score should go back up after a few months.

How Long Do Student Loans Affect Your Credit Score?

Like any other type of debt, student loans may affect your credit during the time you’re repaying them and afterward. Any negative activity, such as a late payment or a delinquent account, will remain on your credit report for seven years. This will likely cause your score to drop.Student loans that were paid on time and in full stay on your credit report for 10 years after the account is closed. They are reported as paid in full by your lender and indicate that you borrowed and repaid responsibly. 

How Student Loans Impact Your Cosigner's Credit

If you have a cosigner on your student loan, the cosigner’s credit won’t be negatively affected as long as you make your payments on time and in full. However, if you fail to make the payments, it will adversely affect your cosigner’s credit as well as your own.It’s important to note that even if the student loan is in good standing, it’s still considered a debt liability for the cosigner and may affect their debt-to-income ratio. If that person wants to open a new credit account for themselves, or take out a mortgage, the student loan debt could impact whether a lender approves them or not.

How Refinancing Student Loans Affects Your Credit

If you’re considering refinancing, you may be wondering how refinancing student loans affects your credit. There is an impact, but it typically doesn’t last long. During refinancing, you work with a private lender who pays off your old student loans and issues you a new loan. This is how student loan refinancing works. When you apply for a refinancing loan, the lender will do a hard credit check. This credit check can temporarily lower your credit score by a few points. However, your credit score will typically rebound after a few months as long as you make on-time payments. One potential benefit of refinancing your student loans is getting a lower interest rate on the loan, if you qualify. If you’re thinking about refinancing, it makes sense to shop around for the best rates and terms you can get.

The Takeaway

Student loans can have an impact on your credit score. Making your monthly payments on time and in full could help to keep your debt low and your credit score strong.However, missing or failing to make payments could damage your credit score. If you’re having trouble repaying your student loans, ask your lender or servicer about your repayment plan options to help lower your monthly payments. Another option is to refinance your student loans. Just be aware that refinancing federal student loans means that you no longer have access to federal student loan programs and benefits. Refinancing could lower your monthly payment if you can get a lower interest rate. That might also make your payments more manageable, which could help keep your credit score healthy. Lantern can help guide you through the refinancing process. You can compare loan rates and terms from multiple lenders all at once in our online marketplace to help find the best fit for your needs. It’s quick, easy, and convenient. And it won’t affect your credit score.Check your student loan refinancing rates with Lantern.

Frequently Asked Questions

How much does a student loan affect your credit score?
How long do student loans affect credit score?
Do student loans raise your credit score?
Photo credit: iStock/Prostock-Studio

About the Author

Jennifer Calonia

Jennifer Calonia

Jennifer Calonia is a Los Angeles-based finance writer who has covered the gamut, including student loans, credit card rewards, consumer loans, and debt. Her work has been featured in outlets like Bankrate, NerdWallet, Business Insider, Yahoo Finance, and U.S. News.
Share this article: