Late payments can stay on your credit report for up to two years, Kantrowitz says, even after you resume payments and bring your account current. However, recent activity has a bigger impact on your credit score than older activity, he adds. So there should be an improvement in your credit score even within a few months of bringing the account current and resuming payments.
Reduce the chance that you’ll miss a loan payment by signing up for AutoPay. Many lenders even offer an interest rate reduction for enrolling in AutoPay.
While missing student loan payments can lower your credit score, consistently paying on time helps build a positive payment history, says Black.
Adding another account to your credit report can also help you if you have a thin credit file, Black adds. Having a student loan could improve your credit mix, which makes up 10% of your FICO score calculation. A good credit mix could increase your credit score and show lenders that you’re able to handle multiple types of credit.
And, as time passes and your student loan gets older, the average age of your credit accounts increases, which can also provide you with a small credit score boost.
Of course, this all depends on you regularly making payments on time. Kantrowitz recommends setting up AutoPay with your private lender or federal loan servicer. That way, you won’t have to try to remember to make your payments each month, and you reduce the chances that you’ll end up paying late or – worse – missing payments altogether.
Not only are you less likely to be late with a payment, but many lenders offer an interest rate reduction when you enroll in AutoPay, Kantrowitz says. You typically see a 0.25 or 0.50 percentage point reduction as an incentive.
Do Student Loans Affect Credit Scores During the Student Loan Freeze?
As part of the federal government’s pandemic relief measures, federal student loan payments have been frozen. During this time, certain loans don’t require payment and they don’t accrue interest. On top of that, collections have been paused on defaulted loans. The latest extension of this payment freeze is set to expire on . Although there could be additional extensions in the future, you shouldn’t count on them when planning ahead.
During the freeze, you won’t be penalized for not making payments, which means your credit score won’t be affected. However, if your loan was in default prior to the freeze, it will still show up on your credit report and impact your credit score, even if collections attempts have stopped.
It’s important to note that not all loans are impacted by this freeze. Private student online cash advance Utah loans aren’t affected. Additionally, nondefaulted loans from the FFEL program that aren’t held by the Department of Education aren’t eligible.
Whether you have federal or private student loans, it’s important to address repayment issues as early as possible. Borrowers who are struggling financially should contact their loan servicer to ask about their options rather than let their loans go into default, says Kantrowitz. These options can include deferment and forbearance, partial forbearance, reduced interest-only payments, and alternate repayment plans.
Ultimately, the best way to keep your credit score healthy and your debt under control is to stay on top of your student loan payments – whether this means paying the amount due on time every month, or contacting your lender as soon as possible and working out an alternate agreement if you can’t pay.
Even if you aren’t being reported, though, you could still face negative consequences from your lender or servicer in the form of late fees or penalties. These may be added to your loan balance and accrue further interest, causing your debt to grow. That’s why it’s important to always make your payments on time, if possible.