Do Student Loans Affect Credit Score?

By Allison Martin

Not quite sure how student loans affect your credit score? In a nutshell, student loans help strengthen your credit profile if you make timely payments each month. 

They are installment loans that require a set monthly payment until the loan is paid in full. This amount may fluctuate, depending on the payment plan you’re on. And each time you remit payment, the activity is reported to the 3 credit bureaus – Experian, Equifax and TransUnion – and helps boost your payment history, which accounts for 35% of your FICO score. 

You can view the payment history on your student loans for free by downloading your credit reports from Keep tabs on your credit score and any changes to your accounts through MoneyLion’s Credit Score Tracking feature, part of the Credit Builder Plus membership. 

Do Student Loans Hurt Your Credit Score? 

Student loans can mean bad news for your credit score if you fall behind on your payments. It’s not the end of the world if you miss the due date by a few days or weeks. You may incur a penalty, but the loan servicer typically won’t report the late payment to the credit bureaus. 

However, failing to make a payment for an extended period without working out an arrangement with the loan services puts your credit rating at risk. 

Federal student loan servicers will give you 90 days to bring the account current before the delinquency is reported. Private student loan servicers aren’t as generous, though – you can expect them to report delinquency to the credit bureaus once the account reaches 30 days past due. 

Unfortunately, late payments can drop your score by up to 100 points immediately for just one past due payment. The negative impact diminishes over time, but the mark will linger on your credit report for 7 years. 

Also, know that the longer the loan remains delinquent, the more severe the impact on your credit report, as the servicer will continue to report the status every 30 days. 

Do You Need Good Credit to Get a Student Loan?

Not necessarily. There’s no credit check requirement for federal student loans for undergraduates. Grad PLUS loans for graduate students and parents do require a credit check, but having less than perfect credit doesn’t mean your application will automatically be denied. You don’t have to worry about an excessive interest rate either – rates are the same for all Grad PLUS loan recipients for the year. 

Whether you’re an undergraduate or graduate student, private loan servicers will typically require a credit check. If approved, your interest rate will be determined by your creditworthiness. And if your application is denied, you can reapply with a co-signer who has excellent credit to strengthen your approval odds. Keep in mind that they will also be responsible for the loan until it’s paid in full. 

Will Your Credit Score Improve If You Refinance Your Student Loans?

Refinancing your student loans may make them easier to manage. But is it a good move for your credit score? If you’ve struggled to manage multiple loan payments each month, it may be a worthwhile maneuver to minimize the risk of credit damage from late payments. 

Keep in mind that refinancing federal student loans into a private product means you may lose certain benefits, like repayment flexibility. Also, you will need to shop around for the best lender, which can ding your credit score if make too many applications. The good news is that you apply with all the lenders you’re considering within a 14-day window, only one hard inquiry will be reflected on your credit report. This is referred to as rate-shopping, which is allowed under the FICO model. 

What to Do If You Can’t Pay Your Student Loans? 

Reach out to your student loan servicer promptly at the first sign of financial distress. You may qualify for a payment arrangement that allows you to minimize damage to your credit score until you get back on track. 

Federal student loan servicers extend income-based repayment plans that reduce your monthly obligations to help make loan payments more affordable. You can also apply for a deferment or forbearance to be relieved from payments for an extended period. 

Private student loan servicers don’t offer income-based repayment plans, but you may qualify for a deferment or forbearance. Some also allow you to change your due date or reduce your loan payment for a few months. It’s best to call the loan servicer to explore your options. 

Can You Build Credit with Student Loans? 

As mentioned earlier, timely student loan payments help improve your payment history over time. But maybe you’ve had quite a few missteps and are seeking ways to restore your credit health. 

If you are trying to build your credit to qualify for better rates or loan products, consider a Credit Builder Loan from MoneyLion. It helps improve your score, and you can get approved for a low-interest loan of up to $1,000. There are no credit checks, and it only takes a few minutes to apply for consideration. 

To qualify, you will need a bank account that’s at least 60 days old and in good standing. You should also have a reliable source of income that’s reflected in the transaction activity. If you’re currently unemployed, you may still qualify if you receive government benefits, child support or alimony. 

Here’s how to get started: 

  • Download the MoneyLion mobile app.
  • Create your custom profile and connect your bank account.
  • Submit a formal application and get an answer in minutes.
  • Accept your loan offer.

Monthly payments are automatically deducted from your account, so you won’t have to worry about late payment penalties and fees. Payment activity is reported to the 3 credit bureaus – Equifax, Experian and TransUnion – to help boost your score over time. 

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