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How Student Loans Affect Your Credit Score

Student in hallway

It may feel like you are going to spend forever paying off your student loans, but there may be a silver lining to making your monthly payment (besides the obvious one of keeping the collection agencies away).

When you make your monthly student loan payments every month, you will likely begin to see your credit score slowly inch upwards. Though it may seem that the high balance would make your credit score go down, paying on your student loans is building your credit history.

A $25,000 student loan will not be looked at the same way as a $25,000 credit card balance.

That’s because the credit bureaus view a student loan as an installment loan rather than a revolving loan. With an installment loan, the balance is expected to go down (cars and houses are paid with installment loans), whereas revolving loans are expected to fluctuate and more often go up.

So, we know why your loans won’t make your score go down, but how will they make it go up? There are two factors that are being affected, credit age and payment history. Student loans usually take a [very] long time to pay off. This may be a discouraging thought at times but look it at this way, the more payments you make, the longer the payment record is on your credit report. The longer your credit history is, the higher your score will be.

Which brings us to the second point, payment history. Payment history usually accounts for about 35% of your score. Make your payments and see your score go up. Pretty simple. In order to see a score increase, your loan payments must be paid on time, every month. This shows creditors that you are responsible and able to manage your credit obligations.

Obviously, while making monthly payments can increase your score, failing to make on-time payments will decrease your score, fast. Some loan servicers will report a late payment after 90 days, where others may do it as early as 30 days past the due date.

One payment may not affect your credit score too much, but any more than that and you may see a change. What’s worse is these late payments stay on your report for seven years. That’s why it’s important to let your lender know as soon as you anticipate issues in repaying your loan. They may be able to work with you.

If some unexpected financial decisions have caught your temporarily unawares, and you need a quick and manageable solution, visit us. We offer timely options until your next payday comes around.