Do Student Loans Affect Your Credit Score?

Whether you’re preparing to go to school or are already there and have student loans in your name, finances are probably on your mind. Specifically, how do student loans impact your credit score?

We’ll explain how the major credit monitoring bureaus determine your score, and what you can do to build a score that benefits you in the long run.

Do student loans affect your credit score?

Yes, student loans affect your credit score. They are treated like any other installment loan, which is a loan with fixed payments over a set period.

The good news: As long as you make your minimum payment on time, your student loans will improve your credit score. You'll show lenders that you make payments on time and are trustworthy with credit, which can help you get offers of credit and better interest rates down the road.

Obviously, if you fail to make payments, your credit score will drop.

We should also point out another way loans affect your score. Since your student loans are a type of debt, they affect your debt-to-income ratio – so you may be limited in how much more you can borrow until you repay some of the loan. For instance, you might be denied an auto loan or mortgage until your income increases or your total debt decreases.

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Can student loans help build your credit?

Student loans can be a great way for young adults and people without established credit histories to build a solid score.

To create a solid starting credit score using student loans, you simply have to make at least the minimum payment according to your loan agreement. If you’re worried you’ll forget, set up automatic payments so the money comes directly out of your bank account every month. Just remember to keep enough money in the account to cover the bill!

Over time, these regular student loan payments will show the credit monitoring bureaus that you’re responsible with borrowing and repaying money, so your credit score will improve.

Having a mix of credit can also help your credit score, so you may want to take out a student credit card. You should also limit frequent requests for credit, and keep your debt-to-income ratio low. The total percentage of credit you actively use should be around 30% or lower.

Important tip: If you’re struggling to repay your student loans, you can work with your lender to get repayment assistance or reduce your monthly payment. It’s always better to reach out to your lender if you don’t think you can make your monthly payment.

FAQ

How much does a student loan affect credit score?

Student loans are closely tied to your repayment history, which is a big factor in determining credit score. Missing student loan payments can have a noticeable impact on your score.

Can you have a 700 credit score with student loans?

It’s totally possible to have a good credit score, like 700, with student loans. The key is making your monthly payments on time.

When do student loans fall off your credit report?

According to the Financial Consumer Agency of Canada, different credit monitoring bureaus keep information on file for different lengths of time. Depending on how they’re treated, loans can positively impact your score for 10 to 20 years, or negatively impact it for up to 6 years.

What happens if I never pay my student loans in Canada?

If you never repay your student loans, your credit score will most likely tank. It can be hard to rebuild your credit without establishing a repayment plan (and sticking to it) or declaring bankruptcy.