Can Student Loans Lower My Credit Scores?

FICO, the company that invented the credit score, recently conducted a study of student debt using data from one of the three major credit bureaus. The average debt was $26,549 in 2012, compared to $17,236 in 2005 or a 54 percent increase.  Approximately 12 percent of U.S. consumers had two or more open student loans on their credit report in 2012, compared to 6 percent in 2005.  Student debt was the largest increase compared to other debt, such as credit card, mortgage, and auto.  In addition, the size of student debt has grown. Approximately .7 percent or one million have student debt over $100,000 in 2012, which was more than three times that of 2005, which was .3 percent.

Student loan debt increased the most

The debt breakdown for those with a least one student loan was as follows:

Mortgage loan debt was $51,728 in 2012, and $44,874 in 2005 or a 15.3 percent increase.

Student loan debt was $26,549 in 2012, and $ $17,236 in 2005 or a 54 percent increase.

Auto loan debt was $5,562 in 2012, compared to $5,829 in 2005 or a 4.6 percent decrease.

Credit card debt was $5,175 in 2012, compared to $5,815 in 2005 or an 11 percent decrease.

All other debt was $3,811 in 2012, compared to $5,154 in 2005 o a 26 percent decrease.

Impact on FICO score

According to FICO, the increase in student debt alone does not impact credit scores. Approximately seven percent of those with student debt over $50,000 have credit scores over 800 (the range is 300 to 850) and 40 percent have scores over 700.

Student loan debt is treated in the FICO score as an installment loan.  That is also how student loans are reported on your credit report – as an installment loan.  An installment loan is for a specific amount and for a defined period of time, such as an auto loan.   Student loans aren’t treated any differently by the FICO score than any other installment loan.  Even deferred student loans or postponed loans are not treated differently; they just haven’t become due yet. The type of student loan, whether it is a government loan or private student loan, has no impact either.

What counts is whether the bill is paid on time and within the time frame agreed upon. Overall installment loans, including student loans, don’t count as heavily in your FICO score as credit card debt. FICO has found that credit card debt is a better predictor of future credit behavior.

“What FICO is concerned about, and what we pay attention to, is how are students — new graduates — handling that debt, said” Anthony Sprauve, a spokesman for FICO’s consumer education.  “We’ll always be watching that to see if it becomes a prediction of future behavior.”

Keep in mind, if you default on the student loan, the negative information will stay on your credit report for 7 years. Student loan payments not made for 270 days are concerned in default, unless arrangements are made with the lender. For Department of Education loans, as soon as they are in default they are due immediately and cannot be deferred.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at, the credit blogger for, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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