The Up-Side of Student Debt

Millions of Americans are burdened with student debt. This burden causes many to put their lives off, delaying home-buying new vehicle loans and other credit-intensive activities. However, there can be an upside.

According to analytics software firm FICO (of FICO Score fame), student loan borrowers can improve their FICO Score.

FICO sampled 10 million scorable consumers age 18-30 in the U.S. who had a student loan actively in repayment. The purpose of the study was to determine the credit behaviors that are driving FICO Score increases and decreases.

The Big Upside: Managing a Student Loan Gets You in the Game

By successfully managing student loans, young adults prove their credit-worthiness – often at much younger ages than those who don’t have student loans. Paying down a student loan can help get you ready for big obligations like a vehicle loan, or a mortgage.

However, there’s a catch: while paying off debt can really help build a person’s credit score, having frequent late payments will do the opposite.

Late payments do more damage to your credit score than any other single factor. Other considerations include the total amount of debt a person has, recent credit inquiries and the percentage of total credit being used (credit utilization).

The Behaviors that Matter

If you want to build a high credit score, concentrate on:

Paying all loans and credit cards on time

Decreasing debt steadily over time

Keep your credit utilization as low as possible

By demonstrating your ability to manage debt at a young age, you can really boost your credit score. Doing so can mean the difference between being approved for a mortgage, or not. It can also save you tens of thousands of dollars over time, since a higher credit score gets you better deals on the credit you use.

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