You’ve finished college and are working your way through your new career. You may also feel like you’re just working to pay off your student loan. While this may be somewhat true, remember that repaying your student loans isn’t all negative. Aside from your education and experiences, you’re also doing some good for your credit when you pay them on time. Defaulting or paying late, however, can cause major harm that’s hard to recover from. Here’s a round-up of everything you need to know about student loans and your credit.

How do student loans affect my credit?

Whether you have $1,000 or $100,000 worth of student loan debt, they are going to affect your credit. Paying them on time will build your positive credit history while defaulting can ruin your credit score and make future purchases difficult.

The pros of paying student loans

While having debt may seem like a bad thing, there are a few reasons why some debt is good. For starters, coming out of college you’ll likely have a limited credit history. You won’t have a lot of on-time payments to show you are trustworthy to a lender. This is where a student loan can help. Making payments on time will help build your credit. The length of your payment history also helps your score. Chances are, you’ll obtain your student loans even before your 21st birthday. By age 30 you’ll have had a long history of paying on time on your credit. That being said, you’ll, of course, want to get out of debt sooner if you’re able to.

Payments account for 35% of your credit score. It’s important to note that not all of your payments are shown on your credit. Things like auto insurance or your water bill don’t get recorded. Student loans will always be recorded so it’s crucial to make your payments on time. 10% of your score comes from your credit mix. If you have a student loan payment in addition to a student credit card, for example, you’re showing a mix of credit which is a good thing. No need to add a ton of debt, however. This only counts for 10% so a few accounts over the years will be plenty. Your credit history accounts for 15% of your score. Showing student loan payments over a long period of time will help boost your score.

The negatives of having student loans

Mismanaging your student loans can be devastating to your credit. It can take you a long time to recover from this as well. Since payments account for 35% of your score, you’ll need to stay on top of your loans and make your payments on time. Negative marks on your credit will stay there for up to seven years. That means that if you are missing payments at 23, even if you make good and get caught up, those missed payments remain on your credit until you are 30. This could affect future purchases such as renting an apartment, buying a car, or obtaining a mortgage. If you’re having trouble making payments, talk to your lenders. They may be able to reduce your payments or change the frequency to help you get caught up. They don’t want you to default either. With federal loans, you will have more flexibility. You can sometimes defer your loans if you qualify. This is called an income-driven repayment plan. Income-driven repayment plans are put in place to help reduce your payments and make them more manageable. Lowering your payments temporarily can help you through a hard time without defaulting or missing payments.

If you default on your student loans, you’ll be in a lot worse shape than just missing payments. Defaulting on your student loan and ending up in collections isn’t a place you want to be. This can do major damage to your credit. Potential future lenders will see your default as untrustworthiness. When someone defaults, the lender loses out on income. You’ll have a much harder time getting new credit, future loans, or accepted as an applicant. Even if you eventually pay the loan in collections or consolidate them, you won’t see the default come off your credit for seven years. It’s a creditors job to collect their money. To do so they will call you and mail letters until you contact them to begin repayment. With government student loans, your wages may also be garnished in order to collect payment. Missing student loan payments will lower your credit score. When your score is too low, you’ll be forced to pay higher interest rates on things like cars, mortgages, or credit cards. The lower your score, the higher the interest rates you’ll have in the future.

Why it is so important to stay current your student loan payments

Make sure to always stay on top of your student loan payments. Budget accordingly and keep up with your payments. Missing payments or defaulting on your student loans will stay on your credit for years to come. You’ll pay higher interest rates when you have a lower credit score as well. Defaulting will cost you quite a bit in the long run. Despite the negatives of defaulting or missing payments, when you pay your loans on time, you’ll see the positive effects on your credit score. Paying student loans on time shows you are trustworthy. They can help build your credit history and increase your score.