How do student loans affect my credit score?

The words "student loans" don't inspire warm-and-fuzzy feelings for most of us. Although student loans put a college education within reach for many people, they also need to be paid back eventually—and depending on how good you are at making payments, loans can either help or hinder your credit score.

By paying student loans off on time, you can boost your credit score and build credit history the same way you would by paying off other loans (i.e. auto payments, mortgage, etc.). When you're trying to establish your financial footing, this can be a serious benefit. Increasing your credit history and your credit score will serve you well if you ever need to take out a new loan or qualify for credit.

If you fall behind on payments, on the other hand, this can negatively impact your credit. Plus, you may have additional considerations depending on your loan type and whether you have any co-signers.

Here's what you need to know about how student loans can affect your credit score and access to credit in the future.

The basics: Loans and your credit report

First, it helps to understand how student loans show up in your credit report.

When you have outstanding student loans, they impact your debt-to-income and debt-to-credit ratios, according to the credit bureau Equifax. These ratios—which appear on your credit report—compare your debt against your monthly income and your total access to credit.

Why do these ratios matter? When you apply for a new line of credit (say, an auto loan or a mortgage), lenders consider your debt-to-income and debt-to-credit ratios to evaluate your creditworthiness.

If a high proportion of your income goes toward paying off loans, lenders may be less likely to offer you credit. But if lenders see that you have a track record of making student loan payments on time, it can be a vote of confidence that helps you secure credit and favorable interest rates.

Federal vs. private student loans

Whether you took out federal student loans through the government or private loans through banks or credit unions, both loan types can impact your credit score.

All types of loans factor into your debt-to-income and debt-to-credit ratios. Plus, your timely payments on loans—or failure to make payments—can either help or hamper your credit score.

But there are some important differences to note between federal and private student loans. For example, federal loan payments aren't due until after you graduate, but many private loans come due while you're still in school.

Make sure you fully understand the rules and regulations for your loan types. If you have a mix of federal and private loans, you will likely have different payment requirements, interest rates, and loan consolidation options for each loan.

Parent loans and co-signers

Some parents choose to take out Direct PLUS Loans to help their children pay for college.

These loans impact a parent's credit score the same way student loans impact a student's credit score. If the parent makes timely loan payments, they could see a positive impact on credit score—or vice versa if they miss payments.

Even if a student helps to pay back a parent's loan, the parent's credit score is impacted—not the student's.

Student loan co-signers should also consider how a loan will impact their own credit. In most cases, students don't need a co-signer to take out federal student loans. But they may need a co-signer to obtain a private loan if they don't have a sufficient credit history of their own.

Co-signing requires a credit inquiry on the co-signer's credit report, and the new line of credit will also appear on their account, according to Saving For College. This can be a positive or negative depending on your credit inquiry history and open accounts; too many recent inquiries can lower your credit score.

If the student doesn't make payments on their co-signed loan, the co-signer is ultimately responsible for the balance, which could potentially impact the co-signer's credit score.

Use student loans to your advantage

Repaying loans may not be fun, but it provides a way to build a strong credit history and credit score. Make sure you understand the repayment terms for your specific loans and start making payments as soon as they come due. Over time, you could reap the benefits of a higher credit score and a positive credit history.