Student LoanStudy Guide

Does Paying Off Student Loans Help Credit Scores?

Does paying off student loans help credit scores? Here in this blog post, you will find every detail about student loans, credit scores, etc.


After leaving school, things change.

All of a sudden, there are more expenses to cover, including your recurring student loan payment. 

In the meanwhile, you’ll need to understand your credit score and how to raise it if you want to borrow money to purchase a car, or a house, rent an apartment, or acquire a mortgage. 

Uncertain about the impact student loan payments may have on your credit score? To learn more, keep reading.

Does paying off student loans help credit scores? Read more to find out.

Read Also: Is Biden’s Student Loan Forgiveness Plan Legal?

Does paying off student loans help credit scores? How Does Paying Student Loans Help Your Credit Score in 2023?

There are Three-digit figures representing your credit score, ranging from 300 to 850. 

Credit bureaus determine these figures based on the details in your credit report, which is a list of all your previous and present debts. 

The cost of borrowing money decreases with a credit score. 

Building and raising your credit score, however, takes time. 

Your credit score is calculated by credit bureaus like Equifax®, Transunion®, and ExperianTM using a range of factors, such as:

  • Are all of your payments made on time according to your payment history? Otherwise, have you ever filed for bankruptcy or been sent into collections? 
  • How much of your available credit may you borrow against if you have a balance on one or more of your credit cards? 
  • Continuity of credit history: Since when do you have credit or loans? 
  • Do you only use credit cards? What is your credit mix? Or do you also have additional loans, such as those for a car, a house, or students?

Check Also: Everything you need to know before you apply for Student Loan Hero

You can improve your credit with a student loan because;

1. It is an installment loan for a lengthy time

You obtained private and/or federal loans to fund your education, and you are currently repaying them over a predetermined length of time in monthly installments (usually 5 – 20 years). 

You’re showing that you can handle long-term debt by being consistent with your payments. 

As long as you pay your bills promptly and in full, effectively managing long-term debt can help raise your credit score.

2. It expands your credit profile

The ability to manage various sorts of debt is what credit bureaus prefer to see. 

A student loan can help your credit mix if the majority of your present debt is revolving credit such as credit cards and other revolving loans. 

When applying for other sorts of loans, such as an auto loan or mortgage, lenders will be more receptive to your application if you can prove you can manage a fixed-rate loan, such as a student loan.

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See Also: FHA Student Loan Guidelines: All You Need to Know

Student Loans: Can they damage your Credit in 2023?

While taking out student loans to pay for school can be a terrific option, there are possible risks to your long-term financial stability. 

When you’re just getting started, having a big monthly payment might be a hardship that pushes back important life milestones. 

Additionally, paying off student loans may force you to turn to high-interest debt like credit cards or other loans to make ends meet.

Consider this: Prior to the COVID-19 outbreak, the typical monthly payment for student loan debt in the United States ranged from $200 to $299. 

Let’s imagine your monthly payment is $250, which is roughly in the middle. 

You cannot spend the $3,000 annually to:

  • Spend less on a down payment for a house. 
  • Prior to starting a family, secure your financial future. 
  • Invest in extra education to improve your employment prospects instead of buying a car. 
  • Establish an emergency fund. 
  • Investing in your future

Your student loans may have additional financial consequences for your credit in addition to the monthly payments you must make.

Also check: How is a Student Loan Different from a Scholarship?

Missing a single payment

Making payments on schedule each month might help you establish credit, but what happens if you miss one? 

You should bear in mind that even though you might only make one student loan payment, you might actually be making payments on several loans. 

For instance, if you borrow federal student loans, you must reapply for a new loan each academic year. 

You can be repaying four loans or more if you attended a 4-year college or university and took out loans each year. 

Your monthly payment is collected by your student loan servicer, who then divides it among all of your loans.

Due to the fact that one missed payment may result in multiple late payments showing up on your credit report at once, your credit score may be impacted. 

Your payment covers multiple loans, so missing one payment could have this effect. 

However, it will take some time for your score to climb back to where it was before. Getting your finances in order will help.

Delinquent payments

Being delinquent is worse than not making any payments at all. 

You run the risk of defaulting if you consistently make late payments. 

Your credit rating will undoubtedly suffer if that occurs. 

Additionally, you run the danger of having additional fees added on top of your balance or having money deducted directly from your pay or tax refund. 

Note that you have 270 days before your federal student loans go delinquent, but private student loans typically give you less time. 

The good news is that your creditors do not want you to default on your school loans. 

Thus, speak with your lender if you are experiencing payment difficulties. 

With regard to federal student loans, they might be able to assist you with debt deferment, forbearance, or an income-driven repayment plan.

Though there are fewer options available from private lenders, they might be open to modifying the loan’s terms to lower your monthly payments.

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Debt-to-income ratio

The amount that each borrower must pay back has grown in recent years as student loan debt has skyrocketed. 

At a time when salaries have been essentially flat, this is. 

Borrowers of student loans have been impacted by this since it has a negative impact on their debt-to-income ratio (DTI). 

You can determine your DTI ratio by adding up all of your fixed monthly expenses, such as: 

  • Mortgage or rent payments 
  • Minimums for credit cards 
  • Repayments on a car loan 
  • Payments on personal loans 
  • Repayment of student loans

Divided by your gross monthly income, your total is used to determine your DTI (think: the money you make before taxes). 

In particular, if you wish to obtain a mortgage, this figure is crucial. 

You cannot be approved for the majority of traditional mortgages if your DTI is greater than 50%, which is the preferred level for lenders. 

If you have a college degree, are between the ages of 25 and 43, and earn $55,000 a year—the typical wage for adults with undergraduate degrees—then you are in the middle of the range.

You are earning $4,583 before taxes when you convert that to a monthly income. If you’re paying the $250 monthly average student loan payment that we discussed earlier, that equates to about 6% of your pretax income going toward your loan payment. 

Suppose your other fixed monthly costs, such as your rent or mortgage, credit card payments, and other loans, total $2,100 per month. 

Notably, Your DTI is now 44% after that. 

Your DTI increases to 51% after including a $250 student loan payment, indicating that you are now likely ineligible for a mortgage.

Remember that DTI disregards living expenses including those for food, clothing, entertainment, medical care, and other necessities. 

Additionally, DTI does not take into account Social Security contributions, as well as federal, state, and municipal taxes, which can potentially reduce your monthly income by an extra 15% to 25%.

Also Check: How Does Student Loan Forgiveness in CT Work? Repayment Program

Can Student Loan Refinancing Improve Your Credit Score in 2023?

Federal student loans typically have fairly low-interest rates, which now range from 3.73% to 6.28%. 

However, if your income has increased and your credit score has climbed, you might be eligible for a private student loan refinance that offers a reduced interest rate. 

Just keep in mind that if you convert your federal student loans into private student loans, you will no longer be eligible for federal student loan relief programs like income-driven repayment plans or, as we’ve seen, payment suspensions during pandemics.

Federal student loans were put on hold in March 2022 by the Department of Education to assist borrowers who were impacted by the COVID-19 outbreak.

You lost out on the payment suspension and 0% interest on your loans if you refinance your federal loans before the stop.

You might also want to see this: How to Apply for Student Loan Forgiveness in Illinois | Review

What Other Ways Can Students Build Credit?

There are various solutions accessible if you’re just starting out and want other methods of enhancing your credit.

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1. Obtain authorization to use

Find out if a family member with excellent credit will allow you to use their credit card as an authorized user. 

You would be given a duplicate of their card that you could use just like any other credit card. 

And the bonus? Your credit report will reflect the credit card, which could raise your credit score. 

Just make sure you use the card responsibly and that both you and the cardholder are aware of the conditions under which you may do so.

2. Open a student credit card

The issuers of credit cards are constantly searching for new clients. 

Even if a student has no credit history, many businesses will still provide them with credit cards. 

Remember that these cards frequently have lower credit limits and higher interest rates than conventional credit cards. 

Use the card responsibly and make a point of paying off the debt each month.

3. Opt for a protected credit card

A secured credit card functions similarly to a standard credit card, with the exception that you must give the lender the funds you intend to borrow against rather than using a predetermined credit limit. 

You are essentially borrowing from yourself, which can enhance your credit.

4. Credit builder loan

Credit builder loans function similarly to loans in reverse. 

You consent to borrow a specific sum of money and to begin making payments on it on a regular basis for a specific duration of time. 

You receive the funds at the conclusion of the loan period. 

By saving the cash yourself, you may accomplish the same goal. 

However, a credit builder loan has the advantage of being reported on your credit report. 

This demonstrates to creditors your reliability as a borrower, which can incline them to extend you a credit line or loan.

From the editor’s desk: Student Loan Forgiveness: Taxable or Tax-Free? | Review

You Can Improve Your Knowledge While Building Your Credit Score

There is no doubt that many borrowers feel as though their student loans are an insurmountable burden. But they can also be useful, which is the bright spot in a gloomy situation. 

Consistently making loan payments can help you build credit and make borrowing in the future simpler.


Does paying off student loans help credit scores? I hope you got what you were looking for.

Financially speaking, it makes sense to pay off your student loans as quickly as you can, but you should be aware of the potential impact on your credit score. 

Without the burden of student debt, you’ll be free to make other financial decisions that may boost your credit score over time. 

You may see a slight decline in your credit score, but it’s unlikely to be significant. 

Paying off your student loans on schedule is one of the finest things you can do to keep your credit score high. 

While some of your credit accounts will be closed as a result of paying off your student loans, your excellent payment history will remain and demonstrate to lenders that you are a trustworthy borrower.

In addition, keep an eye on your credit score and report by checking them frequently. 

At, you can acquire a free credit report from each of the three major bureaus and keep track of your score using a number of free online tools.


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