How to improve your credit with student loans

Paying back thousands or tens of thousands of dollars in student loans can take years, and it can take a toll on your finances. But while student loan debt can be a burden, it can also help you build credit. Here are a few ways that student loans can give your credit a boost.

The biggest factors that affect your credit score

Your credit score is determined by how responsibly you use your credit and how long you’ve had it. FICO Scores are broken down into the following categories:

  • Payment history (35 percent): The timeliness of your past payments.
  • Amounts owed (30 percent): The percentage of your available credit that you owe at any given time.
  • Length of credit history (15 percent): The average length of your credit accounts and how long it has been since you’ve used your accounts.
  • Credit mix (10 percent): The number of different types of credit you hold.
  • New credit (10 percent): How frequently you open new accounts.

How to improve your credit with student loans

Your credit score represents your creditworthiness, affecting everything from interest rates on credit cards to your ability to rent an apartment. If you have student loans, there are a few things you can do to ensure that you’re building a higher score.

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Pay on time

Because payment history makes up such a large part of your credit score, stay on top of your student loan payments. Making timely payments is one of the best ways to use your student loans to build credit. You’ll begin to see your credit score rise over time.

To help you stay on track, you can often set up autopay with your lender. Doing so will ensure that you pay on time every month and could also get you an interest rate discount.

If you’re having trouble making monthly payments, consider adjusting your repayment plan. With federal student loans, you can sign up for an income-driven repayment plan to lower your monthly payment, or you could apply for deferment or forbearance to temporarily pause payments without affecting your score. Refinancing private student loans into a lower interest rate or monthly payment could also help you manage your loans month to month.

Diversify your credit mix

While you should never take on student loans with the sole intention of improving your credit score, they can benefit your credit mix — the number of different types of credit in your name. For instance, if you have both a student loan and a credit card open at the same time, your credit score may see a bump.

Make many years of timely payments

Your credit score will rise along with the average age of your accounts. Having accounts open for many years could improve your credit score over time.

Federal student loans have a standard repayment term of 10 years, and private student loans often have options ranging from 10 to 20 years. Making payments on your student loans for that time will boost your score, especially if you’re new to credit.

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The bottom line

Student loans can play a positive role in building good credit — as long as you keep up with your payments. By building your credit, you may qualify for cheaper student loan refinancing rates, helping you save money on your student loans overall.

Having good credit can also help you in other areas of your life. You might be eligible for a lower rate on a mortgage or car loan, or you may qualify for travel rewards or cash-back credit cards. Your credit score touches most parts of your financial life, so prioritize your student loan payments to ensure that you don’t fall behind.

Frequently asked questions

Can student loans hurt your credit score?

If you don’t pay your bill on time, a lender can report your late payments to the three major credit bureaus — Equifax, Experian and TransUnion. As a result, this can cause serious harm to your credit score. In addition, if you default on your student loans, it can cause even more damage.

Why did my credit score drop after I paid off my student loan?

“There’s a little-known component of FICO’s credit scores that rewards consumers who are paying down installment debts, like student loans, mortgages and auto loans,” says John Ulzheimer, Consumer Credit Expert, formerly of FICO, Equifax and

“Once you finish paying off installment debt, you no longer get that small credit score benefit. That’s why you could have a slightly lower credit score after paying off your student loan.”

But the good news is that this drop is only temporary — your credit score should recover and might even increase if you practice good credit-building habits, like paying down debt and paying all of your bills on time.

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Why did my credit score drop when I applied for a student loan?

When you apply for a private student loan, Grad PLUS Loan or Parent PLUS Loan, a creditor performs a hard credit inquiry to assess your credit health, which can temporarily ding your credit score by a few points.

Learn more:

  • What credit score is needed for a student loan?
  • Do student loans affect your credit score?
  • Will refinancing student loans hurt my credit score?