The Pros and Cons of Student Loan Debt on Credit Scores

If you're like many Americans, you have your fair share of debt from taking out student loans. With the rising cost of tuition at many public and private colleges and universities, some students cannot attend school without student loans. Depending on how much debt you carry, you may be ineligible to be approved for new lines of credit, including a mortgage. The number of Americans with student loan debt has increased from 29 million in 2008 to 40 million this year, according to credit reporting bureau Experian. Not only are more Americans having debt, the average amount of debt has also surged. In 2014, the average debt consumers carry rose to $29,000, up from $23,000 in 2008.

With a greater number of consumers burdened by higher loan balances, you may wonder how your student loans impact your credit score. You may have heard that student loans is an example of good debt but there are limits to how they will help your credit. 

The Pros
When you're young, you may struggle to establish your credit history if you cannot be approved for credit cards or other types of credit lines. For many people, having student loans is an opportunity to build their credit history from the start. Considered good credit, student loans can be your first step in the door to obtain new lines of credit. 

Compared to other credit types that are considered revolving credit, student loans are actually in the second category called installment credit, which include mortgages and auto loans. The more types of credit on your report, the better this will boost your score. Having installment credit combined with revolving credit, which include credit cards, listed on your history will show creditors that you can handle diverse forms of credit, which could increase your chance of being approved for your next loan or credit card. 

The Cons
Although student loans allows you to ultimately improve your credit score, you should be aware that this is only done by making payments on time like you should with any other credit obligation. As loan service providers report the remaining balance on your student loans, you should consider how you will factor in these additional costs along with other items on your budget. Learning to juggle student loan payments to ensure on-time payments is key to making sure student loans are not a financial burden. 

As a form of installment credit, student loans will be paid for with a certain amount for payments for a specific period of time and it's always important to keep track of all these details. These time periods may depend on what kinds of student loans you received and whether they are federal or private loans.

To determine exactly how much you owe, visit the U.S. Department of Education's central database for a student resource called National Student Loan Data System (NSLDS). You should also determine what company is your loan service provider to make sure you know who to contact if your student loan payment is not received.

In the event you are late with your payments to your loan service provider, you may be considered delinquent, which could be seen by other lenders. Although late payments may impact your credit history, your score could bounce back after resolving your overdue payments. 

Finally, if you are close to paying off your student loans, determine whether you have other installment credit lines. Once you paid off your student loans completely, your credit score may drop if those loans were the only forms of installment credit on your report.