Student Loans: How Much Do Late Payments Affect Your Credit Score?

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In response to the COVID-19 pandemic, most federal student loans have been paused since March 2020. Student loan interest has been set at zero and collections have been stopped on defaulted loans until May 1 of this year. Advocates are calling for further loan pauses and an unprecedented system of loan forgiveness.

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Regardless of when you have to resume payments, student loans are debts just like any other, and your payment practices can help or harm your credit score.

Even one delinquency can cause a borrower’s credit score to dive. A series of missed student loan payments can damage a credit score — and your financial future. On the other hand, properly executing a repayment plan can boost your credit score, and this will enable you to apply for future loans and credit cards.

There are many different types of credit scoring models. The most common one, the FICO system, uses five factors to determine your score: payment history, amounts owed, length of credit history, applications for new credit and credit mix. Depending on these factors, your credit file will have a score ranging from 300 (poor) to 850 (excellent).

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Of these criteria, payment history is the most important in determining your score. Late payments can have a negative effect on your credit score. Neglecting to meet payment deadlines can place you under defaulting or delinquent status. When you are regularly late with payments, this is reported to the major credit bureaus (Equifax, TransUnion, Experian).

Although there is no difference between private and federal student loans’ impact on credit scores, the way they may affect your credit score is different because of their relative terms and conditions. Federal loans are typically more lenient, as they have a 90-day waiting period before you are reported. This means you have three months to work out an arrangement with your lender.

Private lenders could report late payments as early as 30 days past due. Depending on the particular student loan company’s terms, you might be subject to a late payment fee as well, thus increasing your loan balance and interest.

See: 100,000 Additional Public Servants Will Have Their Student Loan Debt Canceled Because of This Policy Change
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Whether you will need to start repaying your student loan in May or later, it is important to think about how you are going to do it. By establishing a good credit payment history, creating a credit mix and not living above your means, you can start building your credit score even while you are studying — and avoid credit score damage that may stay with you for years.

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About the Author

David Nadelle is a freelance editor and writer based in Ottawa, Canada. After working in the energy industry for 18 years, he decided to change careers in 2016 and concentrate full-time on all aspects of writing. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry.
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