How to Build Credit With Student Loans

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Building credit with student loans is not only possible, it could be a great way to take on student loan debt and turn it into something positive.

In fact, student loans can be particularly helpful for young adults who aren’t ready to sign up for a credit card or other form of credit. Here’s how…

How to build credit with student loans

Installment loans (such as student loans) affect your credit profile and credit score, but how they affect those things depends on you. It doesn’t matter if you have federal or private student loans. What matters is that you’re responsible with your debt and make on-time payments.

So, do student loans build credit? They certainly can, and here are three ways to use student debt to build a good credit score and credit history:

1. Make all your payments on time
2. Make your payments affordable or get help
3. Consider student loan refinancing
Plus: How credit impacts your financial goals

1. Make all your payments on time

“Using your student loans to build your credit isn’t always easy, but it is simple: Complete every payment in full, on time,” said Nick Ducoff, co-founder and CEO of Edmit, an online resource for researching college costs.

Creditors look at your payment history to determine your creditworthiness. If you’ve missed or made late payments, your credit score will suffer for it.

“Just staying on top of your student loans is enough to increase your credit score [to] the 700 range by the time you have to apply for a larger loan,” Ducoff said.

If you find yourself running late on payments, it’s time to make a plan and set up a system like auto-pay to protect yourself from ever missing a due date. Paying your loans on time is the largest determining factor of creditworthiness.

“It’s important to know your capacity, both financially and personally, to make on-time payments every month, and then to set a system that will prevent you from ever missing a due date,” Ducoff said.

Missing payments can hit your credit report hard. Late payments will stay on your credit report for up to seven years. If you had a late payment put on your credit report today, it probably wouldn’t go away until 2027.

Plus, the more payments you miss, the more delinquency marks you get on your report, which means the more your score plummets.

To help keep your payments on track, use autopay through your loan servicer. It deducts payments from your bank account each month. You can also set calendar reminders to make sure you submit your monthly payments.

2. Make your payments affordable or get help

If your payments are overwhelming and you struggle to make them each month, you might periodically skip one or two. But remember rule No. 1: Always make on-time payments.

So what should you do if you can’t afford your payments?

Talk to your loan servicer and see what options are available for your situation. You might be eligible for an income-driven repayment plan or deferment until you get back on your feet.

“If you find yourself in a tough spot and cannot make a due date, you should contact your lender right away to discuss payment options,” Ducoff said. “Lenders don’t want you to become a credit risk; they have incentives to work with you to find a repayment plan that you’ll be able to meet.”

Ducoff warned that waiting past even one missed payment could mean interest will start piling up. That would make it harder to regain control of your payments. You might be eligible for deferment or forbearance, where you can temporarily pause payments without hurting your credit.

3. Consider student loan refinancing

Keeping your student loans in good standing is a great way to build credit. But managing multiple loans can be overwhelming.

If you want to make your loans more manageable, you could consider student loan refinancing. Refinancing means you’ll make one loan payment rather than many different ones. If you qualify, you could save by reducing your interest payments.

Refinancing can help keep your payments on track. That’ll help you build good credit.

Your credit impacts your financial goals

Credit affects everything. Your credit score represents your creditworthiness. The better the history, the higher the score.

Your score is calculated using your credit history and credit utilization, which is how much credit you’re using versus how much you have available. It also includes how long you’ve had credit and the variety of accounts you hold, and that includes student loans.

Looking to buy a home or car? Your credit will be checked. Need to move into your own apartment? Better have good credit. In some cases, your credit is a factor in employment decisions too.

If you have poor credit history or no credit history at all, accomplishing basic goals, such as renting an apartment or getting approved for a credit card, can be difficult. Having good credit can help you get better interest rates on student loan refinancing, home loans and more.

The good news? Paying back your student loans on time will build up your credit history and improve your credit score.

Maya Dollarhide contributed to this report.

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