There are two types of student loans: federal and private. Federal student loans are funded by the Department of Education, while private loans are typically made by a bank or other financial institution.
Whether they’re federal or private, student loans are classified as a common type of loan called installment loans. An installment loan is for a fixed amount of money plus interest over a set period of time. And the borrower agrees to make payments until the loan is paid off.
Mortgages and auto loans are other kinds of installment loans. And like those loans, if student loans are reported to credit bureaus, they could affect your credit.
Credit Scores and Credit Reports
Speaking of credit bureaus, the following may help clarify some things about credit reporting and scoring:
First, there are three major credit bureaus: Equifax®, Experian® and TransUnion®. These credit bureaus collect and compile the information that goes into your credit reports.
Those credit reports are used by credit-scoring companies, such as FICO® and VantageScore®, to create credit scores. And those companies may have multiple scoring models they use to calculate credit scores.
Those are just some of the basics. But the important thing to remember is that you have more than one credit report and more than one credit score that may be used to judge your creditworthiness.
Back to student loans.
One way student loans can affect credit has to do with something called “credit mix.” Your credit mix is the combination of all your debt, including installment loans and revolving credit. VantageScore says credit mix is part of a “highly influential” portion of its scoring calculations. And FICO says credit mix determines 10% of its scoring model.
Having student loans could help give you a better mix. The reason, according to FICO, is because lenders may see you as a better candidate if you’ve shown you can manage multiple loans and lines of credit. But that’s only if you’re keeping up with payments and paying all your accounts on time.
Account History and Payment History
The Consumer Financial Protection Bureau (CFPB) says part of having a good credit score is showing you’re an experienced and responsible borrower. And timing can play a role in two ways:
First, how long your accounts have been open could be a factor in scoring calculations. VantageScore says it’s “less influential” than other aspects, while FICO says it accounts for 15% of its scores.
Second is your payment history. VantageScore says it’s moderately influential to its credit models. And FICO says it accounts for 35% of its scores—more than any other factor.