Student loans affecting my credit score.

[Anonymous]

I am currently in school for my BS and continue to increase my student loans. In the last 6 months I have also opened up a parent plus loan for my oldest who is in college as well. I noticed over the last month or so that both of our loans are hitting pretty hard on my credit scores. They are dropping my score, which I am already disatisfied with, by 16 points at a time. I didn't realize student loans affect your credit scores if they are in deferrment status while you're in school. Any advice? 

[SCF]

Student loans aren't really special when it comes to your credit report - they work the same as other installment debt.  If the accounts were recently opened, you'll have that "new account" ding, plus any changes in your average age of accounts might have an impact as well.  Installment utilization can also cost you a few points, and you won't get those back until you starting paying down the loan.  I believe they also do a credit check for Parent Plus loans, so you might have a new inquiry in there as well.

Take care of your finances and your credit will take care of itself.  Make sure to stay on top of your loans, make payments while you are in-school if you are able to keep your interest balance low, and make all your payments on-time once they come due.

[Anonymous]

Same thing happened to me when I took out private and federal student loans last year- my credit score decreased by about 20 points and my loans were in deferrment until 6 months after I graduated.  The actual opening of the student loans is what caused the decrease in your credit score, as you are taking on more debt. The fact that the loans are deferred doesn't impact your score becuase they are not eported as "missed or late payments". You can check your credit report to make sure. The best thing you can do is make on time payments once the loans come out of deferment. I've made 3 payments so far and my credit score has seen a positive increase. There is little you can do while you're still a student. 

[ddemari]

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@SCF wrote:

Student loans aren't really special when it comes to your credit report - they work the same as other installment debt.  If the accounts were recently opened, you'll have that "new account" ding, plus any changes in your average age of accounts might have an impact as well.  Installment utilization can also cost you a few points, and you won't get those back until you starting paying down the loan.  I believe they also do a credit check for Parent Plus loans, so you might have a new inquiry in there as well.

Take care of your finances and your credit will take care of itself.  Make sure to stay on top of your loans, make payments while you are in-school if you are able to keep your interest balance low, and make all your payments on-time once they come due.

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this is very good advice! 

[Anonymous]

It's frustrating to hear I won't really see a change until I start paying on these deferred loans, but I appreciate the response back. Unfortunately, I can't afford to pay on those loans any earlier as I am working to pay down on my other revolving debt. I recently paid off two vehicle loans, which also didn't cause a positive impact on my credit score, but at least it freed up those payments that I can now use to pay down on my credit cards. Has anyone found the best way to get your scores to increase quickly without just completely getting out of debt?

[Revelate]

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@Anonymous wrote:

It's frustrating to hear I won't really see a change until I start paying on these deferred loans, but I appreciate the response back. Unfortunately, I can't afford to pay on those loans any earlier as I am working to pay down on my other revolving debt. I recently paid off two vehicle loans, which also didn't cause a positive impact on my credit score, but at least it freed up those payments that I can now use to pay down on my credit cards. Has anyone found the best way to get your scores to increase quickly without just completely getting out of debt?

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Even if you had a near perfect credit score installment debt maxes out around 45 points (and that's if you had pretty installment utilization to begin with); on my file in the 700-720ish range, it was worth 24 points, I'd be at a 740 now without my mortgage.  Paying off the auto loans lost their benefit to offsetting the student loans unfortunately.

Paying down your credit cards is the #1 way of raising your score in short order (well if you have a derogatory getting it deleted is a big deal too heh), and is a large financial win to boot.  End of the day finances >> FICO so you're doing just fine!