Education loan

Understand How Late Student Loan Payments Affect Your Credit Score

Declining student loan default rates is good news, but many student loan borrowers are still struggling.

Estimates show 22 percent of borrowers haven’t yet defaulted but are between 90 and 270 days past due on their federal student loans, which means their credit is likely affected.

The consequences of defaulting on a student loan are well documented , but the ramifications of delinquency, particularly the hit to your credit score when you fail to make payments on time, are not publicized enough.

It can be hard to pinpoint specifically how a late student loan payment can affect your credit score, says Rod Griffin, director of public education for Experian, a leading global information services company that helps individuals check their credit report and credit score.

The impact of student debt on your credit report can also depend on the scoring model being used.

"There are at least hundreds of different credit scoring systems used by lenders," explains Griffin.

"There are credit scores designed only for auto lending, mortgage lending and even insurance purposes.

And, different credit scoring systems have different scales."

But while it’s hard to tell exactly how a late student loan payment may affect your credit, it’s important to know that it most definitely will.

"Keep in mind that a student loan is a debt obligation just like any other," Griffin says. "Once that loan is open, the lender may begin reporting it to the credit reporting companies.

Missing payments affects your credit just like any other debt. Payment history is the most important factor in credit scores."

The lower your credit score, the harder it is to access other forms of credit, like a mortgage and auto loans. It can also make accessing additional credit more expensive via higher interest rates.

Borrow student loans with plenty of repayment protections: Many prospective college students and parents shopping for student loans make their decisions based on interest rates alone, but flexible repayment terms can mean much more to credit in the long run.

Then, you’ll need to make nine consecutive, voluntary, on-time monthly payments to your loan holder.

After nine successful payments, the loan will be sent to a new lender and servicer and the default will be removed from your credit history, though the delinquency will stay.

You can also consolidate your federal student loans out of default in a shorter period of time, but it won’t remove the default from your record.

It’s important to note that both consolidation and rehabilitation will charge collection costs.

With consolidation, it can be as much as 18.5 percent of the total unpaid balance of your Education loan, while rehabilitation collection costs can be as much as 16 percent.

Ultimately, though, getting that default off your record may be well worth the cost.

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