Do student loans affect your credit score?

How do student loans impact your credit score?

If you’ve ever been to uni, there’s a good chance you took out a student loan. For many people, this will be the first kind of loan you ever encounter, and possibly the biggest unless you go on to take out a mortgage. So surely a loan like this will impact your credit score?

Well, no. 

Your student loan has no effect on your credit score at all. This is because you don’t pay it back in the way you would other kinds of credit - instead you pay a percentage of your earnings towards it each month, based on your annual income. You pay nothing back until you reach a certain salary threshold, which will be different depending on when you took your loan out. Because of this, things like missed or late payments become irrelevant, as they’re out of your control. 

Do student loans affect other types of borrowing?

While student loans won’t impact your credit rating, they could impact your ability to get a mortgage. This is because mortgage providers will look at your outgoings to check whether you can afford your monthly repayments. While it’s unlikely that your student loan on its own will stop you being able to afford a mortgage, if you have lots of other regular outgoings it could be the thing that tips you over the edge. 

How can you see how much you owe on your student loan?

You can check your student loan balance on the Government’s website. To sign in, you’ll need the customer reference number or email address you first used to register, your password and a secret answer to a security question. If it’s been a while since you went to university, there’s a good chance you won’t remember a lot of this information, but the website does let you request a password reminder to help you out. You can also find your customer reference number on any old student loan letters you might have filed away. 

Is it worth repaying your student loan early?

There are some kinds of credit that it pays to pay off early. Things like your mortgage or credit card, for example, often come with high rates of interest, so paying them off sooner could save you a lot of money in the long term. However, with your student loan things are a little different. The rate of repayment only goes up with the cost of inflation, meaning you should only pay off the same value of loan you took out in the first place. In fact, if inflation is ever negative, you could even end up paying back less than you borrowed.  

If you have lots of extra cash, no other debts to pay off and are very comfortable financially, you could absolutely pay off your student loan early. But for most people, you’ll be better off focusing on other borrowing and leaving your student loan to do its thing. 

When will your student loan expire?

Student loans are wiped either 25 or 30 years after you started repaying them, depending on which type of loan you took out. There’s no maximum age for repayment, so if you studied as a mature student, you could still be paying it off into your retirement. If you’re nearing the end of your student loan, you should contact the Student Loan Company and switch from automatic payments to a Direct Debit, stopping them from taking additional payments after your loan has been cleared.  

What has the biggest impact on your credit rating?

The biggest impact on your credit rating is your payment history. Lenders will want to see that you’re reliable when it comes to paying back what you’ve borrowed, so consistent, on-time payments will do your credit score a huge favour. 

On top of this, there are a few other things that credit agencies will look out for:

The amount of money you owe
Have you maxed out your credit limit or do you just dip your toe in occasionally?

Your history of credit use
Using credit over a longer period of time gives lenders more information to judge you on.

Credit variety
Different types of credit show you can be trusted to manage more than one repayment.

The amount of times you’ve applied for credit
If you’re constantly applying for credit cards and loans, this will look bad on your credit report. 

Understand everything you need to know about your credit report.

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