Student loans can be a lifeline if you’re pursuing higher education, but they can also have a major impact on your credit profile. By understanding this relationship and implementing a few smart strategies, you can build a stronger foundation for success. Here’s what you need to know:

1. 1. Prioritizing Payment History:For many, student loans are an important first step into the world of credit. By making consistent, on-time payments, you can establish a solid payment history, which is essential for a good credit score.

   Meanwhile, missing payments can severely damage your credit score and report, making it harder for you to borrow money in the future – or even to qualify for apartments or jobs. Consider setting up automatic payments or reminders so you never miss a due date.

2. 2. Dialing in Credit Mix: Most student loans are installment loans, which distinguishes them from revolving lines of credit, like credit cards. A mix of credit types can boost your score since it demonstrates that you can responsibly manage various financial commitments.

   As you track your credit mix over time, remember that you’re legally entitled to one free credit report every year. Review it for errors, signs of fraud, or adverse items that could drag your credit score down.

3. 3. Leveraging Credit History: Most credit scoring models factor in the age of your oldest account, the average age of all your accounts, and how recently you’ve used your accounts. Student loans tend to have longer terms, and every time you make a payment, it counts as account activity. That’s good news for your credit score.

   That said, sometimes it can be worth it to refinance or consolidate loans, even if it reduces your average account age. Refinancing an existing student loan may allow you to take advantage of a lower interest rate or extended payment term, while consolidation can help streamline your monthly budgeting. Ultimately, anything that helps you optimize factor #1 – your payment history – is worth considering.

4. 4. Balancing Amounts Owed: Since student loans are typically installment loans, the amount you owe doesn’t affect your credit score like outstanding credit card balances do. However, some lenders will look at your total debt load compared to your income and assets when making loan decisions.

   If you’re struggling to manage a sustainable debt-to-income ratio, it pays to be proactive. Research income-based repayment plans or programs that could lower the amount you owe each month.

5. 5. Managing New Credit: Applying for new credit accounts can “ding” your credit score, but the impact is usually minimal and temporary. Generally, you won’t be penalized for shopping around for the best loan terms since most credit scoring models disregard multiple credit inquiries of the same type within a short window of time.

   However, applying for multiple credit cards or personal loans in the same period is a clear sign that you’re overextending yourself and need a budget makeover. Craft a plan that prioritizes student loan repayments alongside other essential goals, like building up an emergency fund. Don’t hesitate to seek help from a qualified credit counselor or financial planner.

Questions about budgeting and managing your finances in school and beyond? We’re here to help.