It’s smart to be concerned about your credit scores since this number can play such a big part in your future. Some employers check credit scores before making a hiring decision, so you definitely don’t want to go crazy with borrowing in college.
Depending on where you are in the process, school loans show up in your score in different ways. Each bureau uses a slightly different formula — which is why each one ends up with a different number — but the calculations typically are based on a version of the formula from FICO, or Fair Isaac Corp.
When you are in the initial stages of shopping for a loan, the lenders will do a quick credit check before committing to a loan amount and interest rate. If you have several of these checks within a couple of weeks or a month, the bureaus lump them together and treat them as a single inquiry. There may be a slight ding to your score, but myFICO says it should be only a few points, if any. If you extend your comparison shopping over a longer period, the inquiries won’t be counted all together, and your score could take a little bit bigger hit, depending on how many separate inquiries are counted.
The credit bureaus treat federal and private student loans as installment loans. There is no special category for student loans. Your loan will factor into all five categories that make up the FICO score: payment history, amounts owed, length of credit history, new credit and types of credit. Because of this, it’s important to stay on top of your payments once the loans come due. Payment history makes up the biggest chunk of the score for most people, so you could see a big drop if you don’t pay on time. MyFICO says deferrals don’t automatically change your score positively or negatively, but a deferral is factored into the formula. The end result could be positive, negative or neutral, depending on your credit profile.
Loan consolidations are a little trickier. If the consolidation is repackaged as a whole new loan, your score could dip a little because it will show as a newly opened account. Once you’ve made a few on-time payments, your score should bounce back. If your consolidation is set up as a modification to an existing student loan, myFICO says, you score shouldn’t drop much and may not change at all.