How Student Loans Affect Credit While Going to School

To determine how student loans affect your credit while going to school, consider the total amount of your loans and the length of the deferment period for any deferred student loans. Overall, student loans have less of an impact on your credit score than any major bank credit cards you hold. The primary credit score used to rate consumers' credit worthiness is the FICO (Fair Isaac Corporation) score, which combines information from five different categories found on your credit report.

Total Debt

All currently active credit accounts and loans you have are listed on your credit report, with the total of all these debts being compared to three things: your available credit (amount of debt compared to available credit), your income (income-to-debt ratio) and your assets (car or home). Student loans will not affect your credit in terms of available credit, since there is no credit limit in place as with a credit card, but student loans could affect your credit in terms of the total amount of debt you have compared to your income and assets. The total amount you owe accounts for 30 percent of your FICO score, and typically, the more you owe the lower your score is.

Deferred Loans

Paying down a loan is one of the primary ways to improve your credit score. A loan deferral gets recorded on your credit report, and if it is one of a few or the only credit account on your report, your total debt will remain fairly constant or even increase due to accruing interest on the deferment. Although the lender agrees to the deferment, deferred student loans may adversely affect your credit while in school, as the loan extension may factor less favorably into your FICO score.

Credit Types

When calculating your FICO credit score, student loans are included in the category of types of credit used (credit cards, installment loans, mortgage), which accounts for roughly 10 percent of your overall score. Your payment history and amounts owed (timely payments, paying accounts as agreed, low income-to-debt ratio) have a much bigger impact on your credit, accounting for 35 percent and 30 percent of your FICO score, respectively.

Credit History

Most students have not yet built up a lengthy credit history. Student loans affect credit while in school in a positive manner as well, as long as you follow a few guidelines. Begin repaying your student loans while in school, even if you can only make the interest payments; it demonstrates fiscal responsibility and begins to build a strong credit history before you finish school. Absolutely do not take out student loans for more than you will need, order the free annual credit reports you are entitled to and check them for errors regarding any student loans or other credit accounts.