Personal Finance Student Debt

How Student Loans Can Help Your Credit Score

Just as student loans can help your credit report and credit score, student loans can cause serious damage to your credit. The key is how well you keep up with your payments.

If you pay less than the minimum or pay late, student loans will make your credit score go down. If you pay at least the minimum and on-time every month, your credit score should go up. That’s really all there is to it!

Of course, paying your student loan bills may be easier said than done. If you owe hundreds of dollars per month, covering housing, food, and other bills could really squeeze your budget. While it is ideal to make extra payments to pay off your student loans early, at the very least you should always make the minimum payment.

How your student loans can ultimately save you money

In an ideal situation, you’ll be able to make big extra payments each month and pay off your student loans well ahead of schedule. I worked hard and paid off my $40,000 student loans two years after graduation.

Over the years, I tracked my credit score from around 720 when I started my MBA program to well over 800 today. This steady credit score improvement saves my family hundreds of dollars every month and tens of thousands of dollars over the years on my mortgage.

The difference in a poor credit score and a good credit score might be the difference between getting approved for a new mortgage loan and getting turned down, stuck as a renter.

If you are approved for a mortgage, your credit score has a huge influence on interest rates. On a $200,000 mortgage, a 0.25% difference in interest rate is worth $X for the monthly payment and $X over the term of a 30-year loan.

When you get ready to buy a home, or a new car, or anything else that relies on your credit, you will be thankful you made steady on-time payments for your student loans.

Use your student loans for good

Student loans are a type of “good debt,” or debt that can give you something in return. Just like a mortgage gives you a place to live, student loans help you get the best possible education. Once you take on that debt, it is your responsibility to make regular payments or your credit will suffer.

But if you handle things responsibly, like any other credit account, your student loans can help you build and improve your credit. While student loan interest may be a big expense while still paying off your loans, in the long run the boost to your credit score and mortgage savings may make up for that interest expense and more!

Your student loans already got you an education, if they can help you build credit too, you found the student loan sweet spot. High five!

About the author

Eric Rosenberg

Eric Rosenberg

Eric Rosenberg is a finance, travel, and technology writer originally from Denver, Colorado living in Ventura, California. When away from the keyboard, Eric he enjoys exploring the world, flying small airplanes, discovering new craft beers, and spending time with his wife and baby girl. You can connect with him at his own finance blog Personal Profitability.

1 Comment

  • How many points do you lose if you make a payoff agreement vs. paying off the whole balance due on collection accounts?

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