Yes, Student Loans Can Affect Your Credit Score

Student loans are often one of the first types of loans that young adults take out, and they can have a dramatic impact on your credit. A student loan is essentially an installment loan. A lender provides you with a certain amount of funding for your education, and you’ll agree to pay them back over a specific amount of time.

These loans work much like an auto or home loan. The lender will report your payments to the credit bureaus so that you can start building a track record of financial responsibility. Finding out more about how your loans affect your score helps you maintain good credit.

What Happens If You Forget a Payment?

One advantage of student loans is that some types allow for more leniency regarding late payments. Although private student loans are typically reported after 30 days of missed payments, federal student loan servicers usually give borrowers 90 days before late payments get reported. This might sound generous, but borrowers need to be aware that even one missed payment can result in late fees being tacked onto the next bill.

Will Changing the Terms of My Loan Affect My Credit?

Lots of things can happen over the course of paying back your student loans. If you run into a situation where you can no longer make your normal payments, then there may be several options to help you maintain a good credit score.

People with federal loans may sign up for an income-driven repayment plan. You’ll typically make lower payments that are based upon your income for 20 to 25 years. For private loans, you might be able to modify your repayment plan. Lenders usually prefer that you keep making some type of payment rather than just defaulting on your loans. In a severe financial pinch, you might be eligible to enroll in a deferment or forbearance plan.

Changing the terms should not have a negative impact upon your credit, but it can make finally paying off your loans harder. Lower payments with longer terms means that you will pay more interest over time.

Can the Current Automatic Forbearance Hurt My Score?

The news that the government was offering a student loan forbearance plan as part of their COVID relief package brought relief to many borrowers. Unfortunately, this news was quickly met with shock when an error caused millions of people to have their loan be reported as deferred rather than current. This mistake applies to people whose loans are serviced through Great Lakes, and it is largely fixed now. If you do see an error on your credit report, then report it to the Great Lakes customer service and complaints department.

Will Paying On a Student Loan Build Credit?

Student loans help your credit in several ways. Making regular payments is a large chunk of your credit score, and having a long credit history is also beneficial. Having a mix of different types of credit on your report helps, and student loans work well for boosting that factor.

Does Refinancing Have an Impact?

Searching for the lowest interest rate can lead to multiple hard inquiries showing up on your report. To avoid this, try to do all of your applications within a two week period. With this method, similar inquiries will be combined into only one.

Missing payments or just not paying at all can have a dramatic negative impact upon your credit score. While zero interest student loans will make it easier to follow the repayment plan, you still need to do what you can until we can make them happen. If you run into a problem with payments, then reach out to your lender. Figuring out the best way to meet your loan obligations helps you keep student loans from ruining your credit score.