Student Loan Debt and Your Credit Score

During college, the so-called “time of your life,” the benefits that come with being away from home for the first time seem to outweigh everything. Freedom, one of my personal favorite things about the college experience, is something that most college students couldn’t put a price on. But with the combination of exorbitant (and always increasing) tuition prices these days and high student loan rates, that statement isn't entirely true. In fact, it’s safe to say that most college students who have to pay back student loans share a common hatred for one four-letter word – DEBT.

When college students begin to establish credit after they graduate, their debt from student loans leads to a very popular, but important question. “Will lenders view my debt from student loans in the same negative light as credit-card debt?” In all honesty, there is no definitive answer. Rather, the answer is more of a yes and no. In terms of calculation of scores, student loan debt is viewed more favorably than other types of debt. However, with regards to terms of debt-to-income ratios, student loan debt is looked at equally.

The FICO score, one of the most common credit scores that lenders use, splits up loans into two different categories. The first category, installment loans, includes loans with fixed monthly rates -- car loans, mortgagees, and student loans. The other category, revolving loans, sums up all of the loans where you control the monthly payment based upon the frequency of use. For example, any credit card transaction is a revolving loan.

One thing is for certain, though. A high amount of debt in student loans won’t affect your credit score to the same extent of frequently maxing out your credit card. Still, delaying or missing payments on student loans can severely hurt your credit score. On the other end of the spectrum, though, making student loan payments in a timely fashion is a great way to improve credit. That being said, it’s important for all college students who have to pay back student loans to check their credit score. If you do consistently pay back your loans every month, you need to make sure that the student loan information is being reported, thus improving your credit.

As education becomes more of a necessity to be successful every year, the amount of student loans will continue to increase. And every college student needs to know what steps to take to prevent being followed by bad credit for years.