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How Do Student Loans Affect Your Credit Score?

A woman holding a phone that displays her credit score, in front of a latte and a laptop

Student loans are many people’s first ventures into the world of credit. Because of this, it can be confusing to navigate their impact on your financial future.

If you’re feeling lost, you’re not alone — that’s why we’ve put together this factsheet for how student loans affect your credit score.

How Is My Credit Score Calculated?

Your credit score is calculated by weighing your recent and long standing credit activity under multiple categories. There are several credit score types, but the most commonly known is the FICO score, which grades your credibility as a borrower on a scale from 300-850.

The following factors go into calculating your total credit score:

  • Payment history, 35% of your total score — A missed or late payment will hurt your payment history.
  • Credit utilization, 30% of your total score — This portion of your credit score considers the amount you owe against the total amount you can take out. A lower credit utilization ratio generally signals a borrower is not dependent on or overextending their credit.
  • Length of credit history, 15% of your total score — The longer you have a line of credit open, the stronger your credit score.
  • Recent credit activity, 10% of your total score — This indicates your current risk to lenders and will be impacted by the recent opening or closing of one or more lines of credit.
  • Credit mix, 10% of your total score — Shows a diverse use of credit rather than dependency on one form.

By creating a total score based on these factors, where 300 is considered poor and 850 is considered excellent, lenders can determine your risk and responsibility for future credit.

How do student loans affect my credit score?

Student loans are a type of installment loan, meaning you have agreed to pay back a specific amount of money during a set period. Like other loans, student loans appear on your credit report and play a role in building your credit score.

Most commonly, student loans affect your credit score by showing your extensive payment history and length of credit.

How Can Student Loans Hurt My Credit Score?

Your credit score takes a hit by being late or missing a payment. Other instances — like defaulting on your loan — can cause irreparable damage.

Additionally, if you decide to refinance or consolidate your student loans at some point, your longest line of credit will be reconsolidated into a new loan. If your student loan was your longest existing line of credit, this could impact the length of your credit history and lower your credit score accordingly.

Take Steps Toward Success with Landmark National Bank

When building your financial future, partner with a bank that has your back. At Landmark National Bank, our dedicated staff will help you find personal banking solutions that work for your goals — learn more about our services, or find a location near you and open an account today!

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