Do Student Loans Help or Hurt Your Credit Score?

Building good credit is a vital part of a person’s financial future. So students – if you aren’t thinking about your credit score now, you should be! Your credit score could affect everything from your ability to buy a car to qualifying for a mortgage. And much of a person’s credit history starts in college with student loans. These student loans could both help or hurt credit scores. Let’s explore how.

Do Student Loans Help Your Credit Score?

College student holding out a fan of student loan money, all $100 bills.

Student loans could actually be a great way to start working on your credit score. Most students won’t be purchasing a car, buying a house, or making any other big expenses during this time period. However, student loans could work in your favor by helping you get your credit started early.

Paying your student loan bills on time each month, when they’re due, could help improve your credit score. You’ll also get benefits from the age of the loan, debt diversity, and debt levels. Of course, all this is predicated on consistent, on-time payments.

Do Student Loans Hurt Your Credit Score?

Yes, student loans could also hurt your credit score. Just like any bill, if you fail to pay on time, you could find the lender reporting you to the credit bureaus. A single payment may not have a huge impact, but failing to pay on time several months in a row could devastate your credit score. You’ll also be tacking on late fees.

If you go too long without paying, your loan will go into default. In turn, you could receive calls from debt collectors or receive notice of legal action from the lender.

If you’re ever struggling to pay back your student loans, always reach out to the lender to explore your options. If they’re federal student loans, you’ll likely have a few strategies to choose from, including deferred solutions, income-based repayment plans, longer default periods, and more. Private student loans tend to have less protections for lenders, but they’re still usually willing to work with you to find the best route forward.

Additionally, applying for private student loans could also impact your credit. Most will start with a soft credit check to take a glance at your payment history, which doesn’t affect your score. However, they’ll eventually do a “hard credit check” and your credit score will dip slightly. This usually evens out in a few months. Too many loan applications that do hard credit checks, could negatively impact your score.

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Do Student Loans Require You to Have Good Credit?

Anyone can apply for federal student loans, regardless of credit.

However, most private student loan lenders require you to have at least “good credit” – that is usually above 650. The higher your score, the better terms you’ll be offered, including interest rates.

If you don’t have a high enough credit score to secure a loan yourself, you’ll likely have to find a co-signer, though there are no cosigner student loans available if you meet other criteria.

So, Do Student Loans Affect Your Credit Score?

Yes, student loans could affect your credit score.  If you pay your loans on time each month, you could reap the benefits. Failing to pay, whether late or not at all, could severely damage your credit, result in debt collector calls, and rising debt amounts. If you ever have trouble paying back your debt, don’t delay in calling the lender. It could just save your credit score and financial future.

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