Select’s editorial team works independently to review financial products and write articles that we think our readers will find useful. We may receive a commission when you click on links to our affiliate partners’ products.
The idea that your student loans have little impact on your credit score is a common myth.
The two accounts that show up regularly on credit reports are installment credit and revolving credit. Student loans – in addition to auto loans, personal loans, and mortgages – are considered installment loans and factor into your credit score.
For this reason, it is important that you do not miss any payments. Your payment history (whether you pay on time or late) is the most important factor that determines your credit score, accounting for more than a third (35%) of your FICO score calculation.
“If you default on a few student loans, you’ll see how much student loans affect your scores,” financial expert John Ulzheimerformerly of FICO and Equifax, tells CNBC Select.
It is important to always pay your installment loans on time each month. It can help you build your credit and guide you down the road to establishing a good credit rating.
Think you’ll have a hard time remembering to repay your loans by the due date each month? Below, we share a universal tip that many use to stay on top of this monthly financial task.
Helpful advice for repaying your student loans on time
If you’re having trouble remembering to pay your student loans (or any bills, really) every month, there’s a simple solution: automatic payment.
In order to establish good credit, you need to pay all your bills on time, not just student loans, but also your credit cards, utilities, and medical bills. With so many different due dates to remember, payment automation can help ensure your bills are paid on time, every time.
When you automate your student loan payment, you schedule a recurring payment that automatically withdraws the same amount from your bank account on the same day each month.
Some student loan companies encourage you to pay on time by giving you a discount on your interest rate if you set up automatic payment.
Here’s how your bill payments can help boost your credit score: Experian Boost™ is a free feature that lets you add your one-time phone, Internet, cable, utility (gas, electric, water) and streaming payments like Netflix®, HBO™ and Hulu™ to your Experian credit report. According to its website, average users receiving a boost reported an increase of more than 10 points in their FICO score.
At the end of the line
Chances are you’ve taken a break from paying your federal student loans during the pandemic thanks to the Interest Charge Forbearance Program that’s been in place since the CARES Act passed in March. But it’s the right time to be prepared for repayment to resume in January so you don’t risk missing a payment and hurting your score.
Those monthly student loan payments can be a drag, but by setting up automatic payment, you can pretty much forget about them and focus on more meaningful personal financial goals, like saving for a well-deserved vacation.
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.