Your student loans affect your credit history in a few different ways. If you manage the loans responsibly, you can use them to help increase your credit score and help you qualify for bigger loans in the future. The opposite is also true. If you mishandle student loans, you can seriously damage your credit history.
Your Credit Report
Each student loan you have appears as a separate account on your credit report. Therefore, if you get a federal Stafford loan and a student loan from a private lender each year for four years of undergraduate study, you will end up with eight student loan accounts on your credit report. The data on each account is reported separately, so it is critical to manage each account responsibly. One option to make this easier is to consolidate your loans after you graduate. You can consolidate all of your federal loans into one accoutn and all of your private loans into another account so you have a maximum of two open student loans on your credit report.
Payment History
The major impact of your student loans on your credit history comes through your payment history on the loans. Approximately 35 percent of your credit score is based on your payment history. If you make your student loan payments on time every month, you will boost the payment history portion of your credit score. On the other hand, each payment reported as 30, 60 or 90 days late will hurt your score. If you go into default on the loan, this significant negative information remains on your credit report for seven years after you finish paying off the loan.
Amount Owed
Student loans also affect the 30 percent of your credit score that considers the amount you owe. For each student loan, your credit report shows the amount you originally borrowed and the amount you still owe. Boost your credit score by reducing the proportion of the amount borrowed to that you still owe. Do this quickly by making extra student loan payments if you can afford to. You can also make interest payments while you are in school so you do not owe even more than you borrowed upon graduation.
Other Effects
The other major factors in your credit score are the types of credit you have, the length of your credit history and the prevalence of new credit. Student loans can both help and hurt your credit score in these areas. In the types of credit, student loans are generally helpful because they are installment loans. You should have both installment loans and credit cards to help your credit score. Student loans can also help the length of your credit history because you usually get them while you are young. By the time you are out of college, a student loan from your freshman year will already be almost four years old. However, loans from your senior year will be quite new. For new credit, the most recently opened student loans can hurt your credit score, but these effects diminish over time.
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