Here’s How Your Student Loans Affect Your Credit Score

Your credit score is as American as the star-spangled banner. In the Land of the Free, credit is key. There might be a pang of irony in this reality but the rules are set in stone: in modern day USA, the American dream is tied to your three-digit credit rating.

Of course, not all Americans have a FICO score but it’s becoming increasingly necessary to build it. This is because almost all fundamental financial product required for one’s financial security nowadays bank on credit. And your score is the gate key.

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If you want to get a mortgage, buy a car, or take a personal loan for some emergency expenses, your credit score is the first thing that your lender will look at. That does not mean that the lack of one will prevent you from getting a loan. Some lenders still provide loans for borrowers without credit history – but for a cost. And definitely with much higher interest rates. If you’re lucky, there are some who will be willing to take the unconventional way to determine your creditworthiness. But you can’t always rely on luck. Today, it makes all the sense to have one.

It’s not enough, however, to have credit history. If you’re thinking of getting a loan in the near future, you must ensure that you have a good credit score.

One of the most notable factors that could affect your score is debt. And if you’re among the 43 million Americans with a student loan debt, then it follows that your student loan has a significant bearing on your current FICO.

Just how does one’s student loan debt impact his or her credit rating?

Debt-to-Income Ratio

The great American student loan debt already reached 1.3 trillion with millions in default. Even decades after leaving school, some people are still chipping away their student loan obligations. Some of those who are still in the early years of paying off their loans may find it hard to get financing because of their high DTI ratio.

DTI or Debt-to-Income ratio refers to the percentage of your income that goes to paying your debt. If you are carrying a student loan and are still paying for your car, your DTI might be too high, pulling your score down and discouraging lenders from letting you get a mortgage.

The only way out of this dilemma is to either find more ways to earn extra income or pay off your student loan faster. The faster you pay them down, the sooner your DTI ratio will improve.

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Missing Payments

Your score is sensitive to late payments. Any amount paid beyond the due date can pull down your score. So if you miss on your student loan payments, even if you paid them in full, it will still reflect on your history.

If possible, enroll in an autopay program where your payments are automatically channeled to your accounts so you don’t need to be anxious about remembering due dates or forgetting to pay your lender.


Deferment or putting off payment to a later date can be a good strategy instead of missing your payment dues or defaulting on your loan entirely which would be devastating to your credit rating.

A deferment gives you time to improve your financial situation so if you think you will not be making ends meet with your current finances, speak with your lender to discuss the possibility of getting deferment.

Take note, however, that during your deferment period, you will still be charged interest so by the time you pick up pace, you might be paying more.

Repayment Option

If deferment isn’t possible, you can apply for an income-based repayment plan. In this setup, your lender adjusts your payments based on your current income. This also a good tactic to use if you want to pay off your loan faster.

Having a student loan debt does not automatically pose a red flag to your lender. Like any other debt, it all comes down to how you manage it.

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