July 17, 2021

Do student loans affect your credit?

Student loans are often referred to as “good debt.” Yes, it’s an interesting term. But the idea is that your student loan funds help you to earn a degree, which in turn, can help you generate income and have a strong financial future.

However, student debt is still…debt.

It’s still important for you to learn how to manage your students loan properly. Not only is making on-time student loan payments simply the right thing to do, but it could also have a positive affect on your credit score.

Unfortunately, the opposite is also true if you fall behind on your student loan payments or default. Let’s take a closer look at how students loan affect your credit, both positively and negatively.

How Student Loans Can Affect Your Credit Positively

Once you start your student loan repayment schedule, your payment activity will begin to show up on your credit report.  And payment history is the most important credit score factor, accounting for about 35% of your credit score.

So by simply making your student loan payments on time, you could quickly see your credit score rise.  And that, in turn, could help you qualify for better interest rates on a mortgage, auto loan, or student loan refinancing.

How Student Loans Can Affect Your Credit Negatively

If paying your student loans on-time can help you improve your score, it only makes sense that the opposite would also be true. When you’re late or miss payments, it will have a negative effect on your credit score.

And having your student loans placed in default could hurt your credit in a major way.

That’s one of the reasons why federal student loan borrowers should choose income-driven repayment or forbearance before allowing their loans to be placed in default.

How Long Will a Negative Mark Stay on Your Credit Report?

It depends on your state’s statue of limitations. But typically it takes 7 years for negative marks to fall off. So mishandling your student loan payments, even for just a few months, could impact your credit for a long time.

If your parent took out a federal Parent PLUS student loan for you, it will only affect their credit report and score. However, if your parent cosigned one of your student loans, your payment activity will affect both of your credit profiles.

Do Student Loans Affect Your Credit Utilization Rate?

According to MyFICO, credit utilization is the second-most important credit score factor, accounting for 30% of your overall score. So do student loans affect your credit utilization rate?

The answer is “No.” Only revolving credit like credit cards affect your credit utilization ratio. Installment loans, like student loans and personal loans won’t impact your credit utilization rate.

No matter the amount of your student loans or how much you’re paying every month, it simply won’t be factored into your credit utilization ratio.

Do Student Loans Affect Your Debt-to-Income Ratio?

Yes, a student loan will affect your debt-to-income ratio until you pay it off.

Debt-to-income ratio (DTI) is the percentage of your monthly gross income that you’re using to make debt payments. There are two types of debt-to-income ratio, your front-end and back-end DTI.

Front-End DTI

The front-end ratio, also known as the mortgage-to-income ratio, is calculated as the amount of your total housing expenses divided by your gross monthly income. Most mortgage lenders are looking for borrowers with a front-end DTI below 28%.

Back-End DTI

The back-end ratio is calculated by adding all your recurring monthly payments divided by your gross monthly income. So, it includes your housing expenses, your credit card payments, your student loan payments, personal loans, and so on. According to Wells Fargo, you’re “looking good” if your back-end DTI is below 35%.

The higher a person’s debt-to-income ratio, the higher the chances that he/she won’t be able to manage an additional loan.

So, yes, your student loans can have a direct impact on whether you’re able to get approved for a mortgage.

Are you worried that your monthly student loan payments will push your DTI beyond the limits that mortgage lender allows? Joining an Income-Driven Repayment (IDR) plan could help you lower your monthly payment amount, which in turn will improve your DTI.


While your student loans won’t impact your credit utilization rate, your payment history will impact your credit score.

And your student loan payments impact your debt-to-income ratio, which is another important factor that lenders consider when reviewing loan applications.

Want to learn more about how credit scores are calculated? Check out our guide to understanding the five credit score factors.

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Good Nelly

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