But just because you’re not making payments now doesn’t mean your student loans don’t matter. Your student loans can have a major impact on your credit score and financial life. Whether that impact is positive or negative will depend on what you do once payments resume.
Though student loans are commonly considered good debt – debt that can potentially enhance your life in meaningful and long-term ways – they still are debt and can affect your financial future.
Student loans can help or hurt your credit score, just like any other type of credit obligation that shows up on your credit report, says Michelle Lambright Black, a credit expert and founder of CreditWriter. For example, on-time payments on student loans could strengthen your credit score over time. Late payments, meanwhile, could trigger a credit score drop, she adds.
As long as you make payments on time, though, student loans are more likely to help your credit score than hurt it. Here’s what to know about how student loans affect your credit score – and how you can leverage them to your advantage.
How Do Student Loans Affect Your Credit Score?
Your credit score is generally calculated using five main factors: payment history, credit utilization (balances owed divided by total available credit), the age of your credit history, your credit mix, and recent hard credit inquiries.
Your student loans impact your credit score mainly through your payment history, according to Mark Kantrowitz, a higher education expert and author of How to Appeal for More College Financial Aid. Payment history accounts for the largest part of your credit score, so late or missing student loan payments can have a fairly big impact on your credit score. Continue reading Student Loans Can Help Your Credit Score As Long as You Pay on Time