Credit scores are calculated from the information contained in your credit reports. Payment history and credit utilization are examples of factors that affect your scores. Like other types of debts, your student loans also have an impact on your creditworthiness. The following facts about student loans may help you understand how higher education debt can affect your credit scores.
- Student loans can improve your credit scores if you pay on time. Out of all the factors that affect your credit scores, payment history is the most important. Your student loan payment history accounts for 35 percent of your FICO scores. Paying your student loans in full on time each month can improve your scores. Late payments could hurt your scores, but not always. It would depend on whether your servicer reports your late payments to the credit bureaus.
- Student loans can tank your credit scores if you default. Your credit scores will decrease if you have defaulted. In this case, your credit reports would likely show a history of late payments on the loans, plus a record of the default. If you have federal student loans, you may be able to complete the Education Department’s loan rehabilitation program to remove a record of the default from your credit reports.
- Student loans can increase the length of your credit history. Student loan borrowers, especially young ones, may have limited credit histories. A limited credit history (sometimes called a thin credit file) can result in lower scores. However, making payments on student loan debt could lengthen your credit history.
- Having student loans with other types of credit may improve your credit scores. Depending on the circumstances, credit scores may improve by having a mixture of different types of credit. The different types of credit you have account for 10 percent of your FICO scores. Experian, Equifax and TransUnion report higher education debts as installment loans.
Can I Improve My Credit Scores If I Have Student Loans?
You should not spend too much time worrying about having low credit scores. There is no such thing as a “permanent credit score.” You can always improve your scores, even if you are struggling with student loan debt.
If you are having trouble paying student loans, then you should read some of the blogs we have written about how to lower your monthly payments. Your payment history is the most important factor for improving your scores. You can also speak to a Kansas City student loan lawyer at The Sader Law Firm if you want to explore options for lower payments or debt relief.