How Do Student Loans Impact Your Credit Score?

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How Do Student Loans Impact Your Credit Score?

Americans owe trillions in student loans. Despite the fact that some student borrowers are in over their heads, there are many more who are responsible and are making their payments in full and on-time. The good news is that despite carrying student loan debt, you may actually benefit from having student loans.

Here is how your student loans help your credit score.

Student Loans Boost Credit Mix

Part of the FICO calculation includes credit mix. Credit mix refers to the different types of loans and lines of credit that you have. When you have both installment loans and revolving loans on your credit score, it boosts your credit mix.

Although credit mix accounts for just 10% of your total FICO score, it can give you a small increase in your score if both of these types of credit appear on your credit report.

Student Loans Increase the Length of Your Credit History

Many student borrowers have little to no credit history prior to taking on a student loan. As a result, paying your student loan on-time and in full will actually help you to build your credit history. Given that student loans often have lengthy repayment periods, paying your student loan can actually help you to build a healthy credit profile.

As far as your FICO score, the length of your credit history accounts for 15% of your credit score. Therefore, making your student loan payments on time is another boost for your FICO score.

Always Pay in Full and On Time

That said, any positive impact that student loans can have on your credit score only applies when you’re making your payments on time and in full. Payment history makes up a whopping 35% of your FICO score, the largest of any of the factors.

If you want to continue to enjoy the benefits of student loans on your credit score, avoid late payments and defaulting at all costs. As a rule of thumb, it is always important to pay off your student loan in the shortest amount of time possible.

Don’t extend your repayment period with the idea that you will boost your credit score. You can always enjoy those benefits by paying your new mortgage on time instead!