How Do School Loans Show Up on Your Credit Report?
One of the biggest questions that often comes up when considering student loans is whether they appear on your credit report—and can, therefore, affect your credit score.
The straightforward answer is, yes, your student loans appear on your credit report and are factored into your credit rating, just like any other loan. How you manage your student loans can make an impact, so it's important to stay on top of the situation.
How Student Loans Can Impact Your Credit
Your student loan is considered an installment loan. Just like a car loan or mortgage payment, you make regular, monthly payments until the debt is paid off. As a result, credit reporting agencies will treat them as installment loans on your credit report.
If you have student loan debt and make regular, on-time payments on it after graduation, your credit report will reflect that you are a conscientious borrower who is good at financial management. This could make you look appealing when you need to borrow more money in the future.
On the other hand, failure to pay your student loans on time, letting your student loans fall into collections, or defaulting on student loans will also go on your credit report and can negatively impact your credit score. This can, in turn, affect your ability to get other loans in the future or receive good deals on financing.
When Student Loans Appear on Your Report
It is crucial that you keep your student loan in good standing since it can come back to haunt you when you try to buy your next car, your first home or reach other financial milestones.
Shopping for Private Student Loans Can Affect Your Credit
Applying for federal student loans doesn’t show up on your credit report until you actually take out a loan. If you still need additional funds beyond federal student loans to pay for your college expenses, though, you may decide to shop around for private student loans.
Hard inquiries are reflected on your credit report, so make sure that a private lender only does a soft inquiry when giving you a rate quote. After you've done some comparison shopping, you can submit a full application. However, it's worth noting that most inquiries won't impact your score by more than about five points, so it shouldn't have a big effect on your credit.
Loans Appear on Your Credit Report Even While Deferred
For the record, your student loans will usually show on your credit report while you are still in college and still technically in deferment. However, this typically does not have a dramatic effect on your ability to get non-educational loans since many lenders are more interested in your current monthly payment obligations, which are zero while still in school, as opposed to your actual loan balances.
When Do Student Loans Have a Negative Impact?
Just as with any loan, making late payments can impact your credit. With federal (non-Perkins) loans, your delinquency won't be reported to the three major credit bureaus until you're 90 days delinquent. So, you have a little time to catch up if the situation is very temporary or if a missed payment was an oversight.
Once your loan payment has been delinquent for 270 days, however, it is considered in default. A student loan default could remain on your credit report for seven years. It can take years to reestablish your good credit once your loan goes into default. The government can garnish your pay and also withhold any federal income tax refund you might have been counting on to get out of this situation.
There are some federal benefits you might not be eligible for as well. If you're in default, it's important to talk to your servicer about rehabilitation options so that you can re-position yourself to take advantage of programs and protections available to borrowers.
Private lenders might not wait 90 days to report a missed payment, however. They might also have different guidelines for default. Each private lender is different, but as soon as your lender starts reporting missed or late payments, that can begin pulling down your credit score.
What If You Can't Pay Your Student Loans?
It's not unusual to have problems repaying your loans once you're out of college and have entered the workforce (or are trying to do so). If you're having trouble making your loan payments, you do have options.
One of the first moves to make is to consider income-driven repayment. If you have qualifying student loans, you might be able to shift to a plan that allows you to make payments based on your income—including reducing your required monthly payment to zero.
When you're on income-driven repayment, each payment is considered paid "as agreed." Additionally, payments made while on one of these plans also "counts" toward the 120 qualifying payments needed to obtain Public Service Loan Forgiveness.
If you're having trouble making payments, contact your servicer and ask about income-driven repayment options before you accept a deferment.
Deferment or Forbearance
Review the federal student loan payment options carefully, as they can be changed to reflect your earning capability after graduation. Depending on your personal situation, you may be eligible for some type of temporary deferment or forbearance to help lighten the load.
A loan forbearance will allow you to stop making payments for a certain amount of time, or to reduce payments temporarily. A deferment or forbearance doesn’t hurt your credit score since that is considered as being “paid as agreed.”
Double-check the conditions of your deferment or forbearance, however, so you understand when the situation ends and you're expected to resume making payments.
Some private student lenders also offer forbearance programs. However, these vary by lender and there are no uniform standards. If you're having trouble paying your private student loans, contact your lender as soon as possible to see what types of arrangements they have for borrowers facing hardship.
If you took out both federal and private student loans during your college career, it can get confusing for you and may look messy on your credit report. You also may be more apt to miss a payment, just because your various loans have different payment due dates and payment amounts.
It may be helpful to use a Direct Consolidation Loan for your federal student loans so that you will only have one monthly payment to make. Direct Loan Consolidation might also extend your payment period, making your monthly obligation easier to manage.
It's also possible to refinance your student loans. Note that refinancing makes use of a large private loan to pay off your smaller loans. You can refinance federal student loans, but once you do that, you lose access to programs like income-driven repayment and federal loan forgiveness.
Consider using Direct Loan Consolidation on your federal loans and refinancing any private loans you have. If you have good credit, refinancing before you start missing payments can help you lower your interest rate, extend your loan term and potentially reduce your monthly payment so it's more manageable.
Because both federal and private student loans are included in your credit report, it's important to pay attention to them and make your payments on time and in full when possible.
The worst thing you can do, however, is to ignore your loans when you can't pay them. Missing payments will eventually catch up to you and negatively impact your credit score, affecting your ability to make better financial choices in the future. If you're experiencing economic hardship and struggling to make your payments, contact your loan servicer or lender as soon as possible to review your options.
Equifax. "How Can Student Loans Affect Credit Reports?" Accessed Jan. 17, 2020.
MyFICO. "Credit Checks: What Are Credit Inquiries And How Do They Affect Your FICO Score?" Accessed Jan. 17, 2020.
Federal Student Aid. "Get Temporary Relief." Accessed Jan. 17, 2020.
Federal Student Aid. "Get Temporary Relief." Accessed Jan. 17, 2020.
Consumer Financial Protection Bureau. "What Should I Do If I Can't Afford My Student Loan Payment?" Accessed Jan. 17, 2020.
Federal Student Aid. "Income-Driven Repayment Plans." Accessed Jan. 17, 2020.
Federal Student Aid. "Student Loan Consolidation." Accessed Jan. 20, 2020.
Consumer Financial Protection Bureau. "Should I Refinance My Federal Student Loan Into a Private Student Loan With A Lower Rate?" Accessed Jan. 17, 2020.