How to Improve Your Credit Score with Student Loan Debt

students working on improving their credit score after student loans

To achieve financial success, having a good credit score is essential. This can be hard to achieve when you’re in the middle of paying back your student loans. With payments set to resume for the rest of America in October of 2023, it is of the utmost importance to understand how your Student Loan Payment Plan impacts your credit score. Consequently, this affects your financial future.

In this article, we will teach you how to maintain and even raise your credit score, even if you have student debt that you have to repay again. First, we will define it and delve into what types are available. Then, we will explore how student loans affect your credit report and discuss best practices for paying your student debt back that help raise your credit score in the process. 

Understanding Student Loans Affect: Types, Sources, and Credit Impact

Most of us are familiar with them to some degree — a student loan is a form of installment loan that was disbursed to you during your college years as a quick fix to remove part of the balance of your tuition. In theory, They are one of the methods of payment that one can use to offset the cost of tuition.

The source of these can be the US Department of Education in conjunction with a Student Loan servicer (such as MOHELA, Sallie Mae, or Nelnet), or they may be offered by banks and credit card companies. Loans dispensed by student loan servicers are not due for repayment until six months after you reduce enrollment from full-time to part-time, or six months after you graduate.

Applying for student loans through a federal loan servicer often results in a soft credit inquiry, which checks your credit report without penalizing you. On the other hand, private loan servicers (like Discover Bank, SoFi, or College Ave ) will pull a hard credit inquiry, which could reduce your credit score by as much as 5 points. From the time that it was initially disbursed, they are added to your credit mix as open accounts. From there, they remain on your credit history as an open account until they are fully paid.

Apart from applying for loans from a private lender, the primary factor affecting your credit score is payment or the lack thereof. When it comes to your credit score, it can be raised immensely just by paying off your student loans Though this is good news, it is crucial to have a well-devised strategy. Your credit score is most heavily affected by your payment history, which accounts for a whopping 35% of your composite credit score. Therefore, comprehending your chosen repayment plan and budgeting effectively for on-time and consistent payments is essential.

Federal Student Loan Repayment Options: Choosing the Right Plan To Pay Off Student Loans

Out of all the types of loans when it comes to paying off federal student debt, there are four general repayment plans that you can choose from standard repayment, income-driven repayment, graduated repayment, and extended repayment. Standard student loan repayments are those in which you make equal payments every month over ten years.

Income-driven repayments, on the other hand, are repayment plans in which you make a monthly payment based on a certain percentage of your income for a twenty to twenty-five-year period. Graduated repayment plans entail starting with a set amount that increases every two years until the loans are paid off in a decade. 

Lastly, an extended late payment plan is one in which the borrower repays their student loans over twenty-five years, either with equal payments each month or with gradually increasing payments until the balance is paid off. 

Private Student Loan Repayment Strategies and the Benefits of Refinancing To Build Credit

Concerning paying off private loans, it is vital to note the repayment terms agreed upon when initially accepting the loan disbursement terms. From there, it is always best to adjust your budget to follow that repayment plan to a T. 

Another facet of student loan repayment is loan refinancing, which involves taking out a new (large) loan to pay off older loans. Some individuals opt for this if the refinancing loan offers a lower interest rate, effectively reducing the interest paid throughout the loan.

Ultimately, this has the effect of reducing the money that you pay back in interest as you repay your loan gradually. Keep in mind that when you refinance your loans, the entire lump sum of your remaining balance will shift to a new loan servicer, and you will pay that loan servicer as opposed to your old one. 

Whether you’ve got private loans, federal loans, or a bit of both, the key to success is a good record of payments on time. This can only be achieved by making sure that your student loan payments are included in your budget. Various budgeting methods exist, but experts at personal finance companies like Nerdwallet recommend allocating up to 20% of your income for savings, debt repayment, or a combination of both. Consistently paying off your debts on time can lead to a gradual increase in your credit score, as lenders recognize your excellent payment record.

Impact of Student Loan Repayment on Your Credit Score: Timely Payments and Consequences of Student Loan Default 

When you pay your debts consistently and in a timely fashion, great things can happen! As we mentioned above, your payment history is the part of your credit score with the most weight, so you will likely notice the greatest difference in your credit score when you pay off your loans promptly.

Just as paying off your loans can help improve your credit report, neglecting to pay your student debt on time and at a certain minimum amount can also damage your credit dramatically. If you neglect to pay your federal student debt for 270 days, your account will go into student loan default. 

The status of a loan that is considered to be in default depends upon the loan servicer. There are many different consequences associated with going into default such as legal action, your wages being garnished, and your college withholding your official transcript.

It is of the utmost importance to note that if you go into default, it will be reported as positive payment history, and it has the potential to damage your credit score in such a way that it will take multiple years to repair. To avoid the financial fallout associated with defaulting on your loan, it’s important to factor your student loan debt payments into your budget and to pay your loan installments on time. 


In conclusion, as many prepare to repay their student debt, it is essential to understand your repayment options and the intricacies of student loans. The status of your loans has a substantial impact on building your credit score. Regardless of your repayment plan or interest rate, consistent and timely loan installment payments are the key to success. Establishing sound budgeting practices can help you achieve this.

If you want to know more about types of student loans, different repayment options, and ways to reduce your overall balance, we recommend doing your research on websites like,, or for more information. To learn more about credit scores and how they’re calculated, check out for more! 


Works Cited

Cloos, Kassondra. “How to Refinance Student Loans in 2023: The Complete Guide Earnest Blog.” Earnest Blog (blog), June 7, 2022.

Consumer Financial Protection Bureau. “Options for Repaying Your Private Education Loan.” Accessed October 9, 2023.

“Do Student Loans Affect Credit Scores?” Accessed September 29, 2023.

“How Are FICO Scores Calculated? | myFICO,” October 19, 2018.

NerdWallet. “Your Guide to How to Budget Money,” July 28, 2023.

“Student Loan Delinquency and Default | Federal Student Aid.” Accessed October 12, 2023.

Disclaimer: Boost Your Score does not offer financial advice. The information presented on this page is intended for general consumer awareness and does not constitute legal, financial, or regulatory counsel. This content does not represent the perspectives of any issuing banks. While the information might include third-party references or content, Boost Your Score does not validate or guarantee the third-party information's precision. Internal links are promotional content for Boost Your Score products. Please take into account the publication date of Boost Your Score's original content and any related content to fully grasp their contexts.

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The team at Boost Your Score has over 50 years of combined experience in credit building. Our goal is to help individuals take control of their financial destiny and improve their credit scores. We provide guidance and support regardless of your credit history, whether you're just starting your credit journey or looking to take your score to the next level.

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