Even if your credit history is pristine, it only takes one 30-days past due report to cause a material change in your score.
Whether you were short on cash or just simply forgot, the FICO algorithm doesn’t distinguish—and the result is the same.
This allows us to provide competitive interest rates on student loan refinancing. Since FICO is used widely throughout the lending industry, including by mortgage, auto loan, and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers. While the various factors and weightings used in the calculation are publicly available on FICO’s website, its algorithm is proprietary, which means that no one can predict exactly how a specific financial event will affect your score.
For example, a late payment will likely reduce your score, but by how many points is anyone’s guess.
But if you mismanage student loan debt, your credit score could suffer—and that could have a big impact on your financial future. Do I need a good credit score to take out a student loan?
As a student loan lender, we get a lot of great questions about how student loans affect credit score. The answer depends on whether you’re talking about federal or private student loans.
So, if you have trouble remembering to make your payments, set up an automatic payment plan; most lenders will give you a small discount on your interest rate for doing so.
Federal loans don’t take credit scores into account, which is why every borrower gets the same interest rate regardless of financial profile.However, federal PLUS loans do require that borrowers not have an adverse credit history, which is defined by Fin Aid as “being more than 90 days late on any debt, or having any Title IV debt within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or write-off.” For private lenders, your credit score is usually a key factor in determining not only student loan approval, but also the attached interest rate.