How Student Loans Can Help You Build A Good Credit Score


Here’s how borrowing for school can help improve your credit score. (iStock)

Student loans can present financial challenges when working to pay off your student loan debt and hopefully avoid late payments or student loan default. But while it may take time, money, and effort to effectively manage your student loans, there are some benefits to borrowing for school.

The most obvious benefit of student loans is that they help cover the cost of obtaining a degree. But paying off your student loan can also be beneficial for another important reason. Student loan debt can affect your credit in many ways and can help you build credit as well.

For many young people, student loans are the first debt they incur. Paying them responsibly can help you build your credit history, improve your financial health, and hopefully achieve a favorable FICO score that opens all kinds of doors for you when it comes to personal finance.


Of course, this only works if you know how much you are borrowing and making all of your payments on time. You can use a online tool like Credible to display a rate table that compares the rates of several lenders at the same time to find the right loans for you and a online student loan refinance calculator to better understand the loan repayment costs.

What factors affect your credit score?

Your credit score is determined by five key factors:

  • Your payment history on time
  • The average age of your credit accounts
  • The credit mix you have
  • The percentage of your available credit used
  • The number of recent new credit requests

While each of these different criteria is part of the credit scoring formula leading to good credit, fair credit, or bad credit, payment history is the most important consideration of all. Of course, you can only begin to develop a positive payment history once you actually owe the creditors money and thus avoid missing payments.

Student loans are often the first type of debt available to you, so they’re your first chance to start building a positive payment history. However, you need to be careful not to apply too often to different student loan lenders, as too many recent applications could hurt your credit.


The good news is that you can use an online tool like Credible to compare student loan refinance rates from multiple lenders at once without affecting your credit score.

How Your Credit Score Can Improve With Student Loans

Student loans positively affect credit scores by providing the ability to borrow and start building a credit history.

Often, creditors do not issue a loan or credit card to student borrowers until they have demonstrated that they can handle debt responsibly. It is therefore difficult to borrow for the very first time. But student loans can be easier to obtain than many other types of debt, so they can be the start of improving your credit history that gets you a good score.


You may be eligible for federal student loans even if you have no credit history. Although the eligibility requirements are stricter for private student loans, many lenders allow you to get approval based on your future income and / or with the help of a co-signer. Once you have been approved, your loan and payment statement will appear on your credit report and will be used to determine your score.

An online tool like Credible can be handy for compare the student loan refinancing rates of several lenders without affecting your credit score.

Can Refinancing a Student Loan Help Your Credit Score?

Once you’ve taken out student loans, the key to starting to build credit with them is to make sure you always make your payments on time. Refinancing a student loan can often make things easier.

Refinancing is getting a new loan and using the new debt proceeds to pay off your old student loans in full. Refinancing can sometimes lower your interest rate and can also change the loan repayment schedule.

Often, refinancing allows you to pay off debt faster or lower your monthly payment, or both. If you can activate on-time refinancing payments or pay off your debt balance faster, it can improve your credit score.


You generally want to refinance only private loans, not federal loans, because you don’t want to forgo the benefits of federal loans. You’ll also need to make sure you find a new, affordable loan with a monthly payment that fits your budget. Use a online tool like Credible to get prequalified student loan refinance rates without affecting your credit score.

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.

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