Does Student Loan Debt Hurt Your Credit Score?

Background: A definition of Credit Score.


As you probably know, your Credit score is the result of a complicated calculation. To get to your credit score, the credit bureaus inspect five different areas of your financial situation including:


HISTORY: Do you pay your bills on time, are you always late, never late, that sort of thing.

HOW MUCH: How much money do you owe? More importantly, the credit bureaus want to know how much of your available credit you are using.

LENGTH: Length refers to how long you’ve had credit (also part of Credit History).

NEW CREDIT: Are you aggressively pursuing new credit cards?

TYPE OF CREDIT: The credit bureaus want to know how much installment debt you have versus how much revolving debt.


Next the credit bureaus collect all of these factors above and feed them into their algorithm.  The resulting number is your Credit Score. Keep this fact in mind though; the credit bureaus are trying to assess your credit risk.  They only want to determine as accurately as they can if you will or will not pay off a loan.


So, back to our question: does student loan debt hurt your credit score?


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Sometimes the answer is yes, your student loan debt will hurt your credit score. Then again, in other situations, it will not hurt your credit score. in fact, it may even improve it.


Here’s why the true answer is: “it depends.” Each person’s financial situation is different.


First, consider asking the question another way.  What if you instead asked: “How does student loan debt look on my credit report?”  Asking the question this way may help you understand your credit score from the other side.


Remember your Student loans are a real debt.  This means you do owe the money.  It also means that your student loan debt will be reported regularly to the credit bureaus, regardless of the status your student loan debt.


Installment Loans versus Revolving Loans


From the perspective of the credit bureau your student loan is considered an installment loan.  You may be surprised to learn that Installment Loans with a very large balance are not considered as bad as a large revolving loan balance. Also it is important to understand how your student loans are reported. Student loans are reported to the credit bureaus on a disbursement basis.  For example you may have a subsidized loan and a non-subsidized student loan.  Each of these loans is reported to the credit bureau as separate loans. This increases both the total amount of debt owed and the number of loans outstanding.


Quick review: an installment loan is a debt that is repaid over time with a specific number of payments. Examples of installment loans include auto loans, mortgages and student loans.  Revolving loans on the other hand don’t have a set number of payments, like your credit cards for example.  The point is this, installment loan debt balances do not negatively impact your credit score as much as high credit card balances.  For example, your student loan debt of $21,975 has less impact on your credit score than your $3,900 Visa card balance.


Effects on your credit score:


The Good: Interestingly, student loan debt can actually improve your credit score. Researchers have even demonstrated that people can have high student loan debt and high credit scores. If you make your payments in full on time, then your credit score can actually improve from your student loan debt.  Also, note that the entire time you are making payments you helping yourself establish a credit history.


The Bad: Alternatively, if you miss payments, don’t pay the full amount, or worst of all, you default on your student loan, and then your credit score will be hammered.  Additionally, recognize this fact: defaulting on student loan debt is much worse than defaulting on revolving debt. The reason is due to the nature of student loans.  Student loans are set up and administered by Federal Student Loan laws.  They cannot be statutorily discharged in a bankruptcy like revolving debt.


Conclusion: Student Loan debt absolutely has an impact on your credit score.  However, whether the student loan debt increases your credit score or decreases it is in large part, completely up to you.


So what about you?  Do you have a large student loan balance?  Do you know others with large student loan balances?


Tell us what you think right here:



  • Great tips! 10% of your FICO score is made up of a mixture of different types of loans.

  • Thank you for a very informative post. I was relieved to find out that your credit score is not affected by your student loan debt all the time.

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