The Effect of Student Loans on Your Credit

Reviewed: August 20, 2016
By FinanceWeb

With the price of higher education today, student loans have become a necessity for many. When getting a student loan, remember that it can have a very long effect on your credit and also on your parents’ credit if they co-sign for you. Some are inclined to think “student loans bad credit”, but that does not have to be the case. You have the choice, you can use your student loans to destroy your credit, or you can use them to build your credit.

How a Student Loan Can Hurt Your Credit

Student loans, like most any other loan, will be reported to the three credit bureaus; Equifax, Experian, and TransUnion. There, all of the information about your student loans will remain for seven years after the last payment! There are two things you can do that will hurt your credit.

  • If, during the repayment period, you fail to make a payment until 30 days after the due date, your credit will be negatively impacted.
  • If you default on your loan or become so far past due that the lender turns it over to a collection agency or charges it off, it will be a big negative on your credit.

How a Student Loan Can Help Your Credit

With most students beginning their secondary education when they are only eighteen years old, they have not yet established credit. Student loans are an excellent way of establishing credit, and they can even help your credit report in these ways:

  • They report as installment loans. Installment loans show that you are able to borrow a specified amount of money and pay it back in regular fixed payments over a period of time.
  • Your student loans can help you to build your credit so that when you are ready for those big purchases, such as a house, you have established credit.
  • By making your payments on time you will help to change “student loans bad credit” to “student loans good credit”.

Sometimes Things Happen

Say you are paying your student loans as agreed, and you have been doing this for several months. Then something happens; you get sick, you lose your job, or you just forget to make the payment. What can you do now? No doubt, this is going to put a ding in your hard earned credit report. What you can do at this point is make the missing payment as soon as possible, and get back on track making your payments. Yes, you will have that ding, but every timely payment that you make will help to wipe out the effect of the one payment you missed.

Until you have entered the repayment phase of your student loans, it will not impact your credit.Making payments, not by just owing money, creates credit. Use this credit to your advantage in building your credit for the future, and don’t let “student loans bad credit” apply to you.