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I recently graduated with student loan debt, and my grace period will be ending soon. Most of these loans are subsidized, meaning I do not pay interest until the end of my grace period. If I begin paying the loans off before the grace period ends, will it have any positive effect on my credit score?

Because they're subsidized, I am inclined to wait until the grace period is over, but if starting the payments earlier will begin improving my credit score any sooner, I would rather do that.

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Please tell us where you are. United States? –  Chris W. Rea Dec 8 '12 at 20:08
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up vote 3 down vote accepted

Credit scores are based a lot on your available credit and your demonstrated ability to repay debts. Available credit is typically how much unused credit is available on your credit cards.

Advice: PAY AS MUCH AS YOU CAN - AS EARLY AS YOU CAN

In my eyes, Student Loans are evil. Life has a way of happening, and next thing you know, you'll be 30, or 40, and still paying off your Student Loan. Student Loan default rates have never been higher - and you don't want to fall into that category - that will surely affect your credit in a bad way.

Lastly, think of it this way - say your loan is for $5,000. Yes, the wonderful government is paying the interest now, but 6 months (or whatever the end of your grace period is) you will be charged interest on that $5,000. If you pay $100 a month now, then at the end of that same 6 month period you will only be charged interest on $4,400. ($5,000 - 6 mo * $100).

One more thing - check your credit for free here: https://www.annualcreditreport.com/cra/index

I suggest checking it 3 times a year using a different credit reporting agency each time. Checking your credit regularly (and generally browsing of the sites) will teach you what affects your credit and what doesn't.

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+1 for the advice to pay off student loans sooner than later. As many people point out, unlike other kinds of debts, student loans survive bankruptcy proceedings unscathed, and the lender is permitted to even garnishee Social Security payments for those who stretch out the repayments over their entire working life. –  Dilip Sarwate Dec 11 '12 at 3:46
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Frankly, it depends on the bureau in question. I would love to report that you'll see an increase, but that may not happen across the board. Case in point: I borrowed $20,000 for a private student loan and paid it off in 11 months (during the time I was in school, and this was paid off before the grace period ended). The results when I checked six months later: Equifax: my credit score increased 49 points. Experian: nothing. Transunion: saw a decrease in 30 points.

Of course, other variables could also be at stake and maybe six months was too long, though none of them could have been related to other credit accounts, because nothing changed on my other two credit accounts (credit cards - I never owed on either). As a former banker, I had always thought that credit was confusing, and as I've used it in ways which I thought I would see an increase, I did not.

After having written that, twelve months out, all three have increased over 75 points each. Student loan related (no other credit accounts have been added)? Possibly.

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You might also keep track of your score by using credit monitoring. Have you tried http://www.creditsesame.com to keep track of your score + they have free monitoring? It's a good option if you want to see the effect of paying back your loans.

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Credit Sesame will offer an approximation of the score, but will credit monitoring provide an actual score? I recommend against monitoring for a fee, so I don't know if those services might provide an actual score of not. –  MrChrister Dec 19 '12 at 3:34
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