Do Student Loans Help Build Credit?

Nov 24, 2021 by

Does Credit Counseling Affect My Federal Student Loan Consolidation?

Your credit portfolio may not even be on your radar when it comes to student loans. You’re just trying to find money for school. But whether you realize it, your student loan could be the very first entry on your credit report – hey, a loan is a loan – and thus qualify you for a real life, bona fide credit score. Now, do student loans help build credit? Read on.

Can Student Loans Help My Credit?

We’re going to get this out of the way straightaway; the answer is yes. After all, student loans are at their essence installment loans, meaning that you’ll likely make monthly payments over a certain time frame.

When you begin making one-time payments – emphasis on “on time” — your credit report will begin to positively reflect that. Before you know it, you’ll have an actual credit “history,” which will lay the foundation for more accounts in the form of, say, credit cards or even other loans, which also diversifies your credit file.

What Happens When I Pay Off My Loan?

You should gird yourself for the fact that, after all that sweat equity, your credit score just might drop a bit. What’s that, you say? Yep, but usually only temporarily, and if your student loan was your sole installment account. You score could also see a dip if your other installment accounts have elevated balances. Again, your score will likely rebound and even get better over time.

Note that your student loan can dwell on your credit report for a decade, which is good news for you, especially after you’ve paid it off. Now, we would be remiss if we didn’t say that if you miss payments your score will suffer in equal measure.

If you’re having trouble managing your student loan payments, it’s best to check into student loan refinance to get a better rate that can save you bank. What is refinancing? It’s basically when a private lender pays off your loans and issues you a new one with new terms, including a lower rate.

Are There Other Ways to Build Credit as a Student?

There are indeed other ways you, as a student, can help your credit (even if you don’t have student loans). Here are a few:

  • Get someone to add you to their credit card. If you’re added as an authorized user, and the cardholder has good credit and exhibits sound financial habits, the account’s history will likely turn up on your credit report as well. Good.
  • Open a secured card. You may not have enough of a history to get a card on your own right now, but you probably can get a secured card, wherein your credit limit is equal to your deposit. After you’ve established yourself with that card, you’ll stand a good chance of getting a regular card.
  • Get a student credit card. Some banks issue these. They’re easier to qualify for although they usually have low limits – at first. Use the card for small purchases each month then pay it off immediately. You’ll build good credit this way.

So, do student loans help build credit?

As you can see, why, yes, they do. Again, student loans are like any other loan when it comes to your credit score. That is why it’s important that you get the best student loan rate possible, so that your payments are manageable. Because it partners with other private lenders, Juno can get you the best interest rates available. And down the road, it can help with student loan refi as well.

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