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Do student loans affect your credit score?

It’s common to still be paying off your student loan many years after graduating, but does this affect your ability to be approved for other loans?

Chris Lilly
Chris Lilly

Updated

Although the borrowing terms on student loans are widely seen as generous, with interest rates you’d find almost impossible to get from a traditional lender, it can still be frustrating to see a chunk of your monthly paycheck being swallowed by student loan repayments for years on end.

Do student loans appear on my credit file?

Despite the fact that it’s essentially a low-rate, flexible loan, your student loan debt doesn’t appear on your credit file and will almost never affect your ability to be approved for credit.

Your credit file lists your borrowing history, including past applications and failed repayments, but your student loan won’t appear on it at all. Normally, applications for credit and repayments of credit are reported back to credit reference agencies (CRAs) by lenders, but this is not the case with your student loan.

The exception to this rule concerns students who started university before 1998 and defaulted on their loan.

Given the way that student loans are administered, it’s quite hard for most people to miss a repayment. Would-be lenders want to see that an applicant has borrowed responsibly, but since student loan repayments aren’t reported back to CRAs they won’t help.

Does student loan debt affect my ability to be approved for a loan?

The only way a lender will know that you have student loan debt is if they ask you.

Under new rules made under the Mortgage Market Review (MMR), a mortgage lender may well ask you this and use your answer to consider whether you’re eligible for a loan.

Usually, though, this is just so it can get a better idea of your net income. Banks must lend responsibly, and that means looking at your income and outgoings to make sure that loan repayments would be affordable. The amount of your monthly student loan repayment will change according to your salary, which lessens the impact further.

Having a student loan is unlikely to make or break the ultimate decision on your creditworthiness.

Should I pay back my student loan early?

It is possible to pay back your student loan early, cutting the total amount of interest you pay on your debt.

However, the interest rate on a student loan is are so low that you might find it more profitable to save or invest this money. In some cases, the debt will be wiped before you fully repay it anyway.

As such, it’s best in many cases to let the loan repayments continue to be automatically deducted from your salary.

Paying back your student loan early will have no impact on your credit score, and little impact on your eligibility for most loans.

Tips

Do:

  • Take out a student loan if you need one. It’s the best rate loan you’ll ever be approved for and the impact of your debt after graduating is minimal.

Don’t:

  • Worry about your student loan debt affecting your ability to get a loan. Even with mortgages, the impact on a lender’s decision is typically minimal.

Bottom line

You should always be taking steps to improve your credit score, especially if you’re planning on applying for a big loan in the near future. Repaying your student loan debt isn’t an action that should top your priority list, though, as its impact on lending decisions is negligible.

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