The truth about student loans and credit scores
Student loans only hurt your credit score if you don’t pay them. In some cases, paying off your student loan too early may temporarily lower your credit score. The financial benefits of avoiding added interest payments will likely outweigh your weakened credit rating. Students loans are treated like any other loan — pay them on time, and you’re golden.
Student Loans Put You on the Map
Your FICO score is the most widely used credit score. It combines data from three major credit bureaus: Equifax, Experian, and Transunion. You can’t have a stellar credit score without a credit history.
Student loans jumpstart your credit history. They’re big, long-term loans. Pay them on time, and you’ll look responsible in the eyes of credit bureaus. Make late payments or default on your student loans, and your credit score may take a nasty hit.
Defaulted Student Loans Can Haunt You Forever!
Whatever you do, don’t default on your student loans. Student loans are unique in one significant way — credit bureaus don’t have to remove them from your credit report.
All other defaulted loans have a seven to ten-year time limit before they have to be removed. The Fair Credit Reporting Act doesn’t regulate defaulted student loans. Your credit score can be damaged indefinitely.
One Late Payment Equals Multiple Late Payments
Most graduates owe multiple student loans. Many have six or more. They appear as one charge on the monthly bill from your student loan servicer, but when you make late payments, you get dinged for multiple late payments. Your student loan servicer takes the money you give them each month and pays all of them individually. Missing student loan payments is one of the fastest ways to lower your credit score.
Do your best to avoid it and never default on your student loans. Instead, pay them on time, every time. If you can, pay them off early and save on the interest rates you’ll no longer have to pay. The small ding that your credit score takes should be negligible.