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How Student Loans Affect Your FICO Scores

, by Kelsey

Here are some sobering statistics for anyone who recently graduated from college:

  • 70% of students graduating with a bachelor's degree are leaving school with student loan debt

  • The average class of 2014 graduate with student loan debt owed $33,000—earning them the distinction of the most indebted class ever

  • 2014 graduates face a 8.5% unemployment rate and 16.8 underemployment rate

Recent college grads are leaving school with more debt than ever and entering a job market with fewer opportunities for them to use their degrees and, in turn, pay back their loans.

It's easy to forgive a young grad buried to the neck in student-loan debt for overlooking the impact of his loan repayment on his FICO® Scores. The fact remains, however, that student loans play an important role in establishing a lot of young graduates' credit histories. Often, they're the first piece of information that goes into their credit reports.

That's why understanding how student loans affect FICO Scores is a crucial part every recent grads' financial education. We get it — looking for work while simultaneously trying to find ways to make student-loan payments is hard enough. But doing damage to your scores now and having to pick the pieces up later won't make things any easier.

Your education doesn't end when you flip your tassel from right to left. If you want to graduate summa cum laude in credit, keep reading and learn how your student loans affect your FICO Scores.

Student loans are categorized as "installment" loans

FICO® Scores take two different loan types into consideration when calculating your score—installment and revolving.

Installment loans are a fixed loan amount that you pay back on a regular payment schedule over a predetermined amount of time. Auto loans, mortgages, and student loans fall into the installment credit category.

Revolving loans work a little differently. Instead of a fixed loan amount, revolving loans give borrowers a credit limit—how much of that limit borrowers use is up to them, and the payments change depending on how much the borrower charges every month. Credit cards are prime examples of revolving loans.

What does this mean for your FICO Scores? FICO Scores weigh installment loan debt less heavily than revolving-load debt, which means you can have a large amount of student-loan debt and still have high scores.

Making student-loan payments on time is the most important factor

Whether it's for an installment loan or revolving loan, payment history has the biggest impact on your FICO® Scores—35%. What this means for your scores is pretty straightforward: make your monthly payments on time, every time, or risk doing damage to your FICO Scores.

Payment history already makes up the largest portion of your score factors, but the effect is even more pronounced when your credit history is short. Someone with a 760 score and a 10-year credit history won't be crushed by a single late payment. But when a student loan is the only information on your credit report, your scores will definitely feel the impact of missing even one payment.

Student loans add to your credit "mix"

One way student loans can help your FICO® Scores is by adding to a healthy mix of credit. Your credit mix determines 10% of your scores—not exactly a whopping fraction—but the less information on your credit report, the bigger factor it plays.

A young grad with a thin credit history can benefit from having an "installment" student loan on her credit report because responsibly managing it demonstrates that she has experience dealing with different types of credit.

Student loans can help you qualify for credit cards

Since the Credit CARD Act of 2009, credit card approval rules for college students and recent grads have become stricter. To qualify for a credit card, you often need to prove you make a steady enough income to handle your new credit line—a qualification many fresh-out-of-college job seekers don't meet.

This is where student loans come in. Establishing a strong payment history by making student-loan payments on time can help build your credit and improve your chances of qualifying for a credit card when you do apply. Again, building a responsible payment history is key. Making late payments—or missing them altogether—can lower your scores and actually make it harder to qualify for credit cards, even when you do land that dream job and start earning a steady income.

Want to learn more about the ins and outs of FICO® Scores? Head over to our education pages and get to studying!


Equal parts project manager, content marketer, social strategist and writer, Kelsey is a marketing manager at FICO and financial health enthusiast. Focused on making meaningful connections with consumers on their way to financial fitness, Kelsey is always good for a creative tip on how to keep your budget in check.