Do student loans affect your credit score?

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Student loans can impact your credit score in both positive and negative ways; on the one hand, paying off loans over a long period is a great way to build credit, but your credit score will also drop fast if you miss payments. The good news is that when you understand how student loans affect your credit score, you can take steps to avoid potential negative impacts.

How do student loans affect your credit score?

There are a few different ways a student loan can impact your credit. Here are some of the most common.

Positive impacts

While many students take on student loans before they have an established credit history, student loans can help boost a credit score over time. Some of the benefits include:

  • Positive payment history: As with any other type of credit, if you make your monthly payments on time and in full, they will help you build and maintain good credit. In fact, your payment history makes up 35 percent of your FICO Score, so it’s crucial that you stay on track.
  • Good credit mix: Lenders like to see that you can manage different types of credit. In other words, having a student loan and a credit card is generally better than having two credit cards. Your credit mix accounts for 10 percent of your FICO Score.
  • Long credit history: Many recent graduates may not have had the chance yet to establish their credit history, and having student loans helps with that. And because student loans typically have repayment plans that can last from 10 to 30 years, they can help lengthen your credit history, a factor that makes up 15 percent of your FICO Score.

Negative impacts

Like other types of debt, student loans do have the potential to lower your credit score both temporarily and over the long term. Some of the downsides to consider are:

  • Credit inquiry: Most federal student loan borrowers don’t undergo a credit check when they apply for loans, but if you apply for private student loans or student loan refinancing, the lender will typically run a hard inquiry on one or more of your credit reports. This will temporarily ding your credit score, although FICO says that each additional hard inquiry lowers your credit score by fewer than five points.
  • Negative payment history: If you miss a debt payment by 30 days or more, the lender will generally report it to the national credit bureaus. Because your payment history is the most influential factor in your FICO Score, missing even one payment can be devastating for your credit score. What’s more, it’ll remain on your credit reports for seven years.
  • Delayed benefits: It may surprise some college students that student loans won’t make a huge impact on your credit history until you start making payments after graduation. While student loans will show up on your credit report shortly after you receive the loan funds, the biggest benefits come from timely payments, which many students don’t start making until six to nine months after graduation.

How do student loans affect a co-signer’s credit score?

If you’re applying for private student loans or student loan refinancing, your credit may not yet be in good-enough shape to get approved on your own. In this instance, you may ask a family member to act as a co-signer on your loan application.

In general, student loans impact a co-signer’s credit score in the exact same way as they do the primary borrower’s. This is because, as the co-signer, you’re guaranteeing that you’ll make payments on the debt if the primary borrower doesn’t.

When you submit the application, the lender will run a hard inquiry on both applicants’ credit reports. And while on-time payments will help boost the co-signer’s credit score, a missed one could damage their score significantly. This result can be especially frustrating for a co-signer who was just helping the primary borrower get approved.

Beyond credit score, it’s also important to note that the student loan debt will show up on co-signer’s credit reports as if it’s their own. This means that when they apply for credit — especially a mortgage loan — their debt-to-income ratio will include that payment, even if they’re not making it.

As such, it’s crucial that any co-signers consider the benefits and the drawbacks before agreeing to help.

Do you need good credit to refinance student loans?

You can generally get approved for student loan refinancing with a credit score in the mid-600s. But refinancing usually doesn’t make sense unless you can score better terms on your new loan. So while you might pass the basic eligibility criteria, you may need a much higher credit score to receive favorable-enough terms to make the process worth your while.

To give you an idea of what to expect, Purefy, an online platform that helps student loan borrowers get matched with refinance lenders, found that the average FICO credit score for people who refinance their student loans is 774. Additionally, the average annual income is $98,156.

Of course, this doesn’t mean you need to have a credit score and income at those levels to get what you need. But the better your credit and income situations are, the higher your odds of refinancing at a low rate.

And remember, if your credit score isn’t quite ready for student loan refinancing, you can ask a loved one to co-sign your application. Just be sure that you both understand the potential pitfalls that can come with that arrangement.

The bottom line

Student loans can impact your credit score for better or for worse, but the good news is that you can avoid the biggest negative effects simply by paying your bill on time every month. As you take the time to build your credit, you may also be able to qualify for a lower interest rate through student loan refinancing.

Before you apply, though, consider getting prequalified to get an idea of what you might qualify for if you submit a full application.

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Written by
Ben Luthi
Contributing writer
Ben Luthi is a personal finance and travel writer who loves helping people learn how to live life more fully. His work has appeared in several publications, including U.S. News & World Report, USA Today, Yahoo! Finance and more.
Edited by
Student loans editor