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How Do Student Loans Affect Your Credit Score?

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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!

Will Closing My Credit Card Hurt My Credit Score?

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Will Closing My Credit Card Hurt My Credit Score?

A woman holds a credit card in one hand and a cellphone in the other.

As useful as credit cards can be, it can also be easy to rack up a lot of debt if you’re not careful. Once you’ve paid off that debt, closing a credit card can feel liberating, but how will it impact your credit score? Whether you’re hoping to opt out of an annual fee or reduce your open lines of credit, a moment’s pause can save you years of trouble.

Does closing a credit card hurt my credit score?

In short, it’s possible, at least temporarily.

Your credit score is calculated by examining multiple factors—your payment history, how much you owe, the length of your credit history, types of credit you have, and most recent credit activity—on a weighted scale.

Your recent activity is weighted as 10% of your credit score, and large changes can signal risky behavior to lenders. If you’re on a credit purge, this could really impact your overall credit score.

Closing one line of credit will also shift how you fare in every other calculation.

How will closing a credit card change my credit score?

There are several ways your credit score can be impacted by closing a credit card. Most commonly, it increases the percentage of credit used versus available credit.

For example, suppose you start with three cards with a $1,000 limit each and close two because you’ve only been using $1,000 in credit. Where you were utilizing your credit at 33%, that number now jumps to 100%. This percentage is called your credit utilization ratio.

Ultimately, creditors and lenders like to see a low credit utilization ratio because it theoretically shows you are not overusing or financially dependent on credit. Many financial advisors recommend leaving unused lines of credit open to prevent a significant change in this ratio.

Closing a credit card may also change the length of your payment history. The longer your credit history, the better it is for your score, so closing a card that’s been open for a long time will significantly impact your credit history. If a card is newer, it will have less impact in this way.

Is it bad to close a credit card?

It’s difficult to say whether closing a credit card is strictly good or bad. While it may impact your credit score, it may hold short-term and long-term benefits, such as reducing annual card fees or encouraging you to spend less.

What’s working is generally best left alone, but it’s important to look at all the factors involved before making a decision that works.

How To Close a Credit Card

If you decide to move forward, first pay off any remaining balance on the card, update any recurring payments using that card, and see if you have any unused rewards.

Next, either call the card issuer or cancel online and cut up the physical card. It’s also considered best practice to follow up with a written cancellation request so there’s a paper trail involved.

Lastly, check your credit score. You’ll want to know how your score has been affected for future financial decisions and to ensure the line of credit no longer appears.

Take Your Next Steps with Landmark National Bank

No matter where you’re at in your credit, Landmark National Bank is here to help you along in your financial journey. If you’re ready to break up with your current credit card to find something that perfectly fits your needs, take a look at our personal Visa credit card options. Or, with a variety of personal and business banking options, we’ll help you get where you want to go. Find a Kansas location near you today!