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Rachel Allen
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First published on: Oct 29, 2022

Will a student loan affect my credit score?

Your credit score is a really important part of your financial profile - it has an impact on loads of things, including your chances of getting a competitive car finance deal. 

The way you manage your finances - particularly any debt you have - directly impacts your score, but what’s the deal when it comes to your student loan? Let’s take a look at how your student loan might influence your credit score.

Do student loans affect your credit score?

Your student loan is a bit different to other types of borrowing. For a start, you only start repaying your loan once you’re earning over a certain amount. This threshold will depend on what year you graduated, and what part of the UK you live in - you can get the specifics on the government website

Once you hit the point where you’re due to start paying back your student loan, your repayments will be taken automatically, just like your income tax and National Insurance contributions. So it’s not like other loans where you have to make sure you pay every month - this is taken care of for you.

In the UK, student loans don’t appear on your credit report, and they don’t have an impact on your credit score. But if you apply for a mortgage, the lender might consider whether you have a student loan when running affordability checks to work out how much you could borrow.

Are student loans reported on your credit file?

In most cases - no. Student loans don’t appear on your credit report in the UK. 

This means that when lenders look at your credit file, they won’t be able to see if you have a student loan, or factor this into any decision about whether to lend to you.

But it’s worth mentioning that it depends on when you went to university. The system has changed in the last couple of decades, so whilst student loans aren’t shown on credit reports nowadays, this wasn’t always the case.

Do student loan repayments impact your credit score?

If you started university between 1990 and 1997, you’re on an old ‘mortgage-style’ loan, and repayments aren’t taken automatically - they’re your responsibility. 

Until recently, any missed or late payments did affect your credit report. But, the three main credit reference agencies - Experian, Equifax and TransUnion - don’t take this into account anymore, so it no longer has any effect on your credit score.

From 1998, student loan repayments have been dependent on your income - so you only repay your loan if you’re earning over a certain amount. If you’re employed and earning over the threshold, the payments are taken automatically. You can’t miss a payment, and it can’t impact your credit score.

If you’re self-employed, you’ll need to complete the student repayment part of your Self Assessment tax return, and if you don’t give the right information here, you might have to pay a penalty to HMRC.

How are student loans different from other types of credit?

When it comes to credit and borrowing, student loans are in a class of their own. 

Unlike other types of borrowing, you don’t have to start paying back the loan until you’re earning a particular amount per year. Once you hit that threshold, the payments are taken automatically, so it’s not something you have to manage every month.

Student loans are kept pretty separate from your personal credit file - they’re not included in your credit report, and lenders can’t factor them into any decisions about whether to lend to you. 

The exception to this is if you apply for a mortgage. The lender will ask you about any regular monthly expenses, including student loan repayments, as part of their affordability checks. If your take-home pay is lower because of your student loan repayments, this could have an impact. On the other hand, going to university in the first place often means you’ll have a higher salary, so this could cancel out the impact of your repayments.

The other major difference between student loans and other types of credit, is that at some point the balance eventually gets written off. Depending on when you went to university, and which repayment plan you’re on, your loan balance will be written off either 25 years after you became eligible to repay, or 30 years after, or when you turn 65. You can find out when your loan will be written off on the government website.


FAQs student loans and credit scores

Will my credit score go up when I pay off my student loans?

Your credit score isn’t affected by your student loan, so the outstanding balance you have doesn’t have an impact. But, once your loan is paid off you’ll have more disposable income, which will put you in a better position when it comes to affordability checks for a mortgage.

Can missed student loan payments lower my credit score?

If you have a pre-1998 student loan, and you’re managing your repayments yourself, then it’s important to make sure you stay on top of your monthly payments. But, the major credit reference agencies in the UK don’t take this into account anymore, so your score is unlikely to be affected if you do miss a payment.

For post-1998 students, your repayments are made automatically, so missing a payment isn’t an option.

How can I improve my credit score while managing student loans?

There are lots of ways to build up your credit score - here are some basics to get you started:

  • Pay your bills on time
  • Keep your credit card balances low
  • Don’t make lots of credit applications in a short space of time
  • Check your report to make sure your details are correct, and if they’re not, ask the credit reference agency to update them
  • Register on the electoral roll

It can take a while for your credit score to change, so be patient and stay consistent.

 

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