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:
“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.
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.
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.
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.
Interested in refinancing student loans?Here are the top 6 lenders of 2021!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 5.99%1||Undergrad & Graduate|
|1.99% – 5.64%2||Undergrad & Graduate|
|1.99% – 6.84%3||Undergrad & Graduate|
|1.91% – 5.25%4||Undergrad & Graduate|
|2.25% – 6.53%5||Undergrad & Graduate|
|2.17% – 4.47%6||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews! |
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
5 Important Disclosures for SoFi.
6 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.