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From the Experts at

How Student Loans Can Impact Your Credit Score

by Christine DiGangi

How Student Loans Can Impact Your Credit Score

While there’s not a lot of good news out there concerning student loans, having them can be really good for young consumers’ credit scores.

Credit scores are calculated based on certain aspects of a consumer’s credit report, including payment history, debt levels, age of credit and debt diversity. Having a well-managed student loan can actually have a positive impact on credit scores, if you handle them correctly.

Following the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, young consumers had to prove financial ability to repay debts in order to get a credit card. Having student loans establishes credit history, which is helpful for those who can’t access revolving credit, and for those with credit cards, a student loan improves the diversity of their credit profiles.

Like other forms of credit, applying for a new private student loan account (and some federal student loan programs) results in a hard inquiry on one’s credit report, which can shave a few points off credit scores. A new account appears separately from the inquiry on a credit report, also resulting in a slightly negative, short-term impact on credit scores.

The good news is that student loan inquiries, as with mortgages and auto loans, will be “deduplicated” on credit reports, allowing multiple inquiries within a small period of time, typically between 14 and 45 days. This allows consumers to shop for the best deal among private student lenders without unnecessarily hurting their credit scores. If you want to see how your student loans may be impacting your credit, you can get a free copy of your credit reports from each of the major credit bureaus annually. Also, you can look at your Free Credit Report Card, which will grade you on major credit scoring factors like payment history.

Borrowers can look at student loans as an opportunity to strengthen payment history. Late payments on any debt will hurt credit scores, but making on-time monthly payments during the student loan repayment process will be an outstanding asset on a credit report. That sterling payment history should be the goal, providing motivation to avoid making any late payments, or worse, defaulting on the loan.

The amount owed in student loans bears little impact on a borrower’s credit scores — it really comes down to the payment history, which is why it’s important to take on a manageable debt load and take advantage of loan repayment assistance when available.

  • Idaho_Dave

    OR you could consider working for a political solution to this politically caused debt. In the upcoming presidential election there will be candidates who advocate change to the whole student loan business. Your time spent working to dump those politicians who fail to support student loan reform could be the most rewarding time of your life.

    • Red

      We absolutely must fight for student loan reform! People are being dragged down for life while just trying to get a “good education”.

  • DRJ

    If you don’t want to pay the student loans back at the rates offered then don’t take out the loan….can’t get easier than that

  • joe debt

    Just remember that if your loans are in default for over 5 years they disappear from your credit report but if you start paying they will ding the report and you’ll have to start paying them again. Also they can charge a 25 percent default fee every time you default so make sure you keep your job for ever or you could be penalized multiple times. Keri that in mind it’s you want to start paying them.

  • Biff Tannen

    most school loans stay with you until death anymore – they don’t disappear after 5 yrs – they can take money from your social security benefits if you still owe by then

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  • Meet Our Expert

    christine_digangi GravatarChristine DiGangi covers personal finance for Previously, she managed communications for the Society of Professional Journalists, served as a copy editor of The New York Times News Service and worked as a reporter for the Oregonian and the News & Record.
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