Do Student Loans Affect Credit Score While in School?
Understand how student loans uniquely impact your credit score while you are actively enrolled in school. Learn about managing your financial future.
Student loans are a significant financial commitment that can influence an individual’s financial standing, including their credit score. Understanding how student loans interact with this score, especially while enrolled in school, provides clarity on their financial impact.
Student Loans and Your Credit Report
Student loans are categorized as installment loans. Upon disbursement, these loans are reported to the major credit bureaus, appearing on an individual’s credit report. This occurs regardless of whether the borrower is currently enrolled in school or if payments are presently due.
The credit report will display various details about the student loan, including the original loan amount, the loan servicer responsible for managing the loan, and the account’s open date. Even when in school, the principal balance of the loan is reflected on the report, contributing to the total amount of debt an individual carries. The credit report functions as a historical record, documenting the opening of the account and its ongoing status.
The Impact of In-School Status on Credit
While enrolled in school, many federal student loans enter a period of deferment, meaning payments are not required. This deferment status is noted on the credit report as “deferred” or “current.” A deferred status does not negatively impact the payment history component of a credit score, as no payments are expected or missed.
Each new student loan disbursement can be reported as a new account on the credit report. The addition of new accounts can influence the “average age of accounts” component of a credit score, which favors older, more established credit lines. For individuals with a limited credit history, multiple new loan accounts might temporarily reduce this average age. Student loans also contribute to the “credit mix” component, diversifying a credit file by adding an installment loan to any existing revolving credit accounts.
Credit utilization, which compares the amount owed to the available credit, is less directly affected by student loans during deferment compared to revolving credit like credit cards. Since student loans are installment accounts with a set balance rather than a revolving limit, the concept of “utilization” does not apply. The primary impact during deferment relates to the overall debt load and the opening of new accounts.
Making Payments While Enrolled
Even when student loan payments are not required due to in-school deferment, borrowers can make voluntary payments. Consistently making these payments on time positively contributes to a credit score. Payment history is a key factor in credit scoring models, and demonstrating responsible repayment behavior, even when not mandated, builds a strong record.
Voluntary payments help reduce the principal balance of the loan, decreasing total interest accrued. While this direct reduction of the principal does not immediately alter credit utilization, it can indirectly improve the credit profile over time by lowering the overall debt burden. Conversely, if a loan is not in deferment or forbearance, or if a borrower chooses to make payments but then misses them, late or missed payments lead to negative marks on a credit report, lowering the credit score.