6 ways student loans can help—or hurt—your credit score

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Which of the following sums up your feelings on student loan debt?

  1. Makes me want to bawl like a baby.
  2. I pray for the zombie apocalypse.
  3. Goodbye credit score.
  4. It’s a trap!

If you chose any or all of the above, you’re not alone. Last year’s grads owe an average of $37,000 in student loans, and four in five say it’s a problem. One of their biggest fears? That borrowing too much money will trash their credit score.

Your credit score is like a GPA for your finances. It reflects how responsible you are with the money you borrow. Lenders use it to decide whether to lend you money for purchases like a car or a house. Anytime you borrow money, it affects your credit score—but whether it goes up or down depends on you.

Play it right, and your student loans can earn you an A+ credit score.  But there are a few facts you need to know first.

1. Student loans are your ticket to building credit. Before you start making existential memes about your student debt load, consider: Many twentysomethings have trouble renting an apartment—or even getting an unsecured credit card. Why? They have zero credit. Without a credit history, you might as well be a financial ghost. Fortunately, if you’re repaying student loans, you don’t have that problem. As long as you make your payment every month, you’re building credit and pulling up your financial GPA.

2. They weigh less than credit cards. When calculating your GPA, not all assignments carry the same weight. Pop quizzes have less impact on your grade than finals, for instance. It’s also true for loans. Student loans are installment loans, which means you make fixed payments until the loan is paid off. Installment loans affect your score less than other types of loans (and a lot less than credit cards). That means they might not build your credit as fast—but they won’t wreck it as fast, either.

3. Missing payments will cost you. Either way, you don’t want to mess with your student loan payments. Getting just one or two months behind will drag down your score. A private lender will report you once you’re 30 days late; with federal loans, you have 60 days before your score takes a hit. And if you fail to pay back your loans—also called defaulting—it will haunt your credit report for seven years.

4. Getting caught up helps your score. If you do miss a payment and your credit score takes a hit, catching up on your payments can make an immediate difference. Your credit score can sometimes bounce back within a few weeks. Many student loans even offer repayment assistance or other friendly options to help get you back on track.

5. Deferring won’t ding your score. Some recent grads qualify for deferment, which means you put off making payments for a while. As long as everything’s legit, your credit score won’t suffer. In fact, deferring might make it easier to get approved for other loans since it frees up your income for other payments. Just keep in mind you’ll still be accruing interest on your deferred loans.

6. Buying a house might be harder. Want to buy your own pad someday? Student loans can help you build the credit you’ll need. But they can also get in the way. A high student loan balance can jack up your debt-to-income ratio, which is all of your monthly payments divided by your monthly income. To qualify for a home loan, you’ll need to make this ratio as low as possible—which means you might have to pay down your student loans first.

Juggling student loans is no picnic. But if you have to do it, you might as well milk it for all it’s worth. Use your loans to build stellar credit and set yourself up for a brilliant financial future.