Photo by Element5 Digital on Unsplash

The last thing college students and recent graduates might think about is how their student loans can impact their credit reports and their financial lives in general. Nevertheless, the impact is real. Here’s how I learned about the intersection of student loans and credit:

Back when I was a newly minted college graduate, I got hired to be a bank teller and then a personal banker. At the time, the job was a placeholder while I searched for work in journalism. Years later, I realize it was probably the best job a new college graduate could have, as it immersed me into an education on personal finance I wouldn’t have had otherwise.

One of the moments I remember the most is learning about “debt-to-income ratios” and how they impacted someone’s ability to be approved for credit. Now, income isn’t included on credit reports, but debt is and if someone’s debt was too high relative to their income, their chances of approval went down. My student loans came into mind, along with my meager $11 per hour wage. It occurred to me that I might never be approved for any kind of loan (at least not until ten years or so went by).

That moment was the first time I understood that my student loans could impact my financial life in more ways than just my monthly budget. Suddenly I found myself desperately wanting to find out the answer to two questions: “How do student loans show up on my credit report,” and “How will these student loans affect my credit?”

Here are the answers I wished I had then.

How Do Student Loans Show Up on My Credit Report?

Even though federal student loans don’t require a credit check, that doesn’t mean they don’t affect your credit, as I found out in my job as a personal banker. Any kind of financial obligation we take on, from credit cards to loans to cell phones and even utility bills, can show up on our credit reports.

Here’s what that might look like for you:

When do Student Loans Appear on Your Credit Report

It might seem as though student loans shouldn’t show up on a credit report until they’re in repayment. After all, if you’re not required to pay on them until later, why should they appear now?

The truth is, federal and private student loans can be reported on your credit as soon as they’re opened.

Student Loans in Deferment

If the loans are in deferment, the credit reporting bureaus might simply mark them as such. That way it’s clear you don’t owe anything yet, but it’s also clear that you’re the owner of these loans.

Now, if your parents took out loans in their names and didn’t include your name at all, these loans will show up on their credit reports, not yours. This is something to keep in mind for later — because if you agreed to make payments on these loans after your parents took them out, not doing so will damage their credit.

Student Loans in Repayment

Once you enter the repayment period on your student loans, they’ll be reported in the same way as any other loans you’ve taken out. These loans will no longer be marked as deferred, and your payment activity will be reported.

Private student loans in repayment should show up on your credit reports under the name of the lender you borrowed with. Federal student loans, according to Student Loan Borrower Assistance (SLBA), “will often say both ‘DEPT OF ED’ and the servicer name.” The servicer is the company that manages your federal loans, and who you make payments to.

SLBA goes on to say that it might get confusing if you have Federal Family Education Loans (FFEL) or if you have private student loan lenders who also work with FFEL borrowers. If that’s the case and you don’t recognize the names showing up on your credit report, you can use the National Student Loan Data System to find what your loan servicers are called.

Federal Student Loans on Special Repayment Plans

Finally, there is a wildcard that might come up when you’re trying to figure out how student loans show up on your credit reports, and that’s income-driven repayment plans.

Income-driven repayment plans are plans that federal student loan borrowers can use to lower their monthly payments to a portion of their income. Although these plans, which can ultimately enable some borrowers to be eligible for student loan forgiveness, aren’t marked as such on credit reports, they are still reported somewhat differently.

That’s because standard student loan repayment plans have fixed repayment periods, typically of anywhere between 10 and 30 years. Income-driven repayment plans don’t have a fixed repayment period, only a fixed number of payments after which the remaining balance may be eligible for forgiveness.

SLBA explains how this works in the example of one of the income-driven repayment plans, called Income-Based Repayment (IBR). Borrowers using IBR are eligible for forgiveness after 20 or 25 years of consecutive, on-time payments (the actual number depends on when you borrowed your loans). In that case, here’s what SLBA says will show up on the credit reports:

“The credit report of a borrower in Income Based Repayment whose remaining balance will be forgiven after 25 years will indicate that the borrower’s repayment period is 300 months even though that borrower may repay the loan in full before the end of 25 years.”

That said, this doesn’t differ all that much from traditional loan reporting. Since borrowers could theoretically pay off any loan early, there’d be no way to report that until it happens.

How Do Student Loans Affect My Credit?

Now that you know how student loans show up on your credit report, let’s talk about the part you probably care the most about: How student loans affect your credit.

In short, student loans affect your credit in much the same way other loans do. And, since what’s on your credit report informs what your credit score will be, here are the pros and cons to having student loans on your credit report:

  • An immediate positive, if you also have a credit card, is credit mix. Credit mix makes up about 10 percent of your credit scores and having both a credit card and a loan boosts your performance on this factor.
  • Another factor that determines your credit scores is length of credit history, and it makes up about 15 percent of your score. In this case, your student loans can help you the longer you have them.
  • This next one is positive or negative, depending on how you handle your student loans. Payment history is the most influential factor in determining your credit scores, at about 35 percent. If you always pay your loans on time, this is an easy way to build and maintain great credit scores. However, if you pay late even once, you’ll be dinged in this category. And, if you default, your credit scores will take a major hit.
  • Finally, credit scores are impacted by the amounts owed, which makes up about 30 percent of the score. In the case of student loans, you can look better in this category the more of your loans you pay down. That’s because it’s measured in terms of how much is owed compared to the original balance. The lower that amounts owed number gets in relation to the original balance, the better.

How to Keep the Relationship Between Student Loans and Credit Simple

Thinking about student loans and credit and all the other things you want to accomplish in finances and life can be a lot, to say the least. So, here’s something to help you keep it simple, at least in terms of student loans and credit:

Don’t sweat it. Pay your loans on time every single month no matter what (and in the full amount due per month). If you have federal loans you can’t pay, apply for income-driven repayment plans. If you’re struggling with private loans, ask your lender about hardship programs or forbearance or deferment. No matter what, avoid default at all costs.

As long as you make your payments in full and on time every month, then your student loans can actually help your credit. Unless the balances are an astronomical amount, don’t let the fact that you’re carrying student loans make you think you’ll never be approved for new credit. Keep that positive payment history going, and lenders will know you’re a good bet.

Make sure your debt doesn’t negatively impact your credit. Find out how.

[FREE Tool: Get a free credit score and find out if there are any errors on your credit report!]