Does Paying Off Student Loans Bring Your Credit Score Higher?

With the price of tuition constantly on the rise, more and more people are taking out loans to pay for college. According to the American Council on Education, the average student graduates from a four-year private college with more than $17,000 worth of debt. The average master's student is $29,000 in debt, though it's not uncommon to owe much more. That much debt can drag down your credit score. Paying it off can help.

Credit History and Student Debt

Student loans are different from other forms of unsecured debt. While they do count against you when your credit score is calculated, they are not as bad as other types of loans. They are, however, included in your total debt. Lenders look at your debt-to-income ratio when deciding whether or not to lend you money. Having a lot of student debt can make it harder and more expensive to get a mortgage or another type of credit.

Using Your Student Loans to Raise Your Credit Score

Student loans are good for building up your credit history and raising your credit score. One of the most important factors in calculating your credit scores is your repayment history. It counts for more than total debt. If you are good at repaying what you've borrowed, lenders will want to lend you more. Thus, by keeping up with your student loan repayments, you are actually raising your credit score.

Paying Off Your Student Debt

Paying off your student debt in full can raise your credit score. It will lower your overall debt and raise your debt-to-credit ratio. However, it will not make a huge difference to the score, since student debt wasn't hurting it that much to begin with. However, lenders take more than the score into account when deciding whether you are creditworthy. You may find it easier to borrow money with the same credit score and a lower debt-to-income ratio.

Raising Your Credit Score

There are other ways to raise your credit score. If you have other forms of debt, pay them off before you pay off your student loan. Student loans are low-interest. Clear more expensive debt first, and make sure you make at least the minimum payment on everything. Check your credit report regularly to make sure there are no errors that could be hurting your score. You can get your report free of charge from annualcreditreport.com. If you spot something that is wrong or doesn't make sense, challenge it by filing a claim on the credit bureau's website. Fixing a mistake can raise your score in as little as 60 days.