Millions of people in the U.S. are facing financial challenges due to student loans. With the government resuming loan payments after a pause, many are struggling to keep up.
If you’ve fallen behind on payments, your credit score might have dropped, but the good news is that you can recover your score with the right steps and some patience.
In this article, we’ll explore how student loans impact your credit score and home buying process and provide steps to improve your score, ensuring you’re on the right track for purchasing a home.
How Student Loans Impact Your Credit Score
Student loans are a type of fixed payment plan, and like any form of credit, the regularity of your payments plays a major role in determining your credit score.
According to the Consumer Financial Protection Bureau, your payment history accounts for 35% of your FICO score. If you miss payments for more than 90 days, your loan provider reports the issue to the three major credit bureaus: Experian, Equifax, and TransUnion.
This can significantly lower your credit score, potentially by 100 points or more, especially if it’s your first major slip-up.
In early 2025, around 2.2 million people saw their credit scores drop by at least 100 points, and another 1 million experienced drops of 150 points or more. A lower credit score can make it harder to qualify for loans or even get a mortgage.
Steps to Improve Your Credit Score
If you’re looking to improve your credit score, here are some steps that can help:
1. Start Paying Again Right Away
Even if you’ve missed payments, start paying as soon as possible to prevent further damage. Consider setting up automatic payments to make sure you never miss another due date.
2. Talk to Your Loan Company
If you’ve only missed one or two payments, your loan provider might be able to help. Some companies will remove missed payments from your credit report if you explain the situation and show a history of timely payments.
3. Explore Different Payment Plans
If you’re struggling financially, consider signing up for an Income-Driven Repayment (IDR) plan. These plans adjust your monthly payments based on your income and family size, making it easier to manage your student loan repayment.
4. Consider Consolidating Your Loans
If your loans are overdue, consolidating them can help you make regular payments and remove the overdue mark from your credit report after making a set number of on-time payments (usually nine over ten months).
However, keep in mind that consolidation won’t erase your overdue history but will simply update your loans.
5. Monitor Your Credit Reports
Check your credit reports regularly for errors or outdated information. You can get a free report each year from each of the three credit bureaus at AnnualCreditReport.com. Sites like Credit Karma and NerdWallet also allow you to monitor your credit for free.
6. Keep Your Credit Usage Low
Aim to use less than 30% of your available credit. This simple tip can quickly boost your score.
7. Diversify Your Credit
If you don’t have much credit, consider getting a secured credit card or a small loan to build your credit. This will show that you can handle credit responsibly.
8. Limit New Credit Applications
Avoid applying for new credit while you’re focusing on improving your score. Each inquiry can slightly reduce your score and make you appear risky to lenders.
The Bigger Picture: How Student Loan Repayment Affects Home Buying
Missed student loan payments can stay on your credit report for up to seven years. However, if you begin making payments on time and manage your credit responsibly, you can start to see improvements within just a few months.
Staying consistent with your payments is key to boosting your score and improving your chances of qualifying for a mortgage.
While getting behind on your student loans can impact your credit score, it’s not the end of the road. The government has resumed student loan collections, and they are even considering taking money from wages and tax returns to recover unpaid loans.
But with the right approach, you can fix your credit and set yourself up for a successful home purchase.
FAQs
Why do student loans affect home buying?
Student loans can impact your ability to buy a home because they affect your credit score. A lower credit score can make it harder to qualify for a mortgage, leading to higher interest rates or even a denial of the loan.
How can I improve my credit score after missed student loan payments?
To improve your credit score after missing student loan payments, you can start making regular payments again, consider speaking to your loan provider for assistance, and explore payment plans like Income-Driven Repayment (IDR) plans.
How long do missed student loan payments stay on your credit report?
Missed student loan payments can stay on your credit report for up to seven years, but with consistent on-time payments and good credit habits, your score can start to improve within a few months.
Can I still buy a home with student loans in default?
It’s possible to buy a home with student loans in default, but it may be more challenging. You may need to rehabilitate your loan, make several on-time payments, and improve your credit score before you can qualify for a mortgage.
