Skip to content
Pensive young man next to a laptop with University written on it

How Do Student Loans Impact Your Credit Score?

Private student loans and other types of financing can have a major impact on your credit score, making it difficult to obtain other forms of financing in the future.

If you’re applying for university, taking out a student loan may be a necessary step in achieving your academic goals. It’s no secret that tuition fees and student accommodation can be expensive–not to mention the cost of your textbooks and general living expenses. Many university students cannot afford to fund several years of study without some financial assistance.

There are a few different ways of obtaining a loan as a student. The most popular method is to borrow from the government through the official Student Finance route. However, there are also some alternative options, including private loans for students.

Whichever you choose, it’s important to understand the impact that private loans and other types of financing for students can have on your credit score and overall financial wellbeing.

Key Takeaways:

  • Government funded student loans do not appear on your credit report and therefore do not affect your credit score.
  • Though they don’t directly help or hinder your credit, your student loan repayments may be considered as part of an affordability check if you apply for a mortgage or bank loan.
  • Other forms of credit, such as student credit cards, overdrafts, and bank loans for students, may appear on your credit report and affect your credit rating.
  • Effective management of private student loan debt can help you to maintain a healthy credit profile.

Understanding Student Loans in the UK

Student loans in the UK are primarily managed through government-owned services. Depending on where you normally live, you will need to apply to one of the following:

  • Student Finance England
  • Student Awards Agency Scotland
  • Student Finance Wales
  • Student Finance Northern Ireland

Your options may be slightly different depending on your constituent country, but in general, the UK government offers two main types of student loans: tuition fee loans and maintenance loans.

Tuition fee loans cover the cost of your course fees and are available to all eligible UK students. Maintenance loans are intended to cover living expenses, such as accommodation and food, and are typically means-tested based on your household income. You will be charged interest on both types of loans and must start repaying them once you start earning over a certain amount. The threshold varies depending on which student loan plan you’re on.

Student Loan Interest Rates and Repayments

Interest is charged from the day you take out your student loans. Student loan interest rates are calculated yearly based on the Retail Price Index and may vary depending on which plan you’re on. This is based on when you studied and which government agency you applied to. For example, if you applied to Student Finance England and you started your postgraduate course on or after 1st August 2023, you’ll be on Plan 5.

You’re usually eligible to start repaying your student loan from the April after you finish your studies if your income is above the threshold for your plan. Student loan repayments vary depending on your income and are taken directly out of your salary if you’re employed. If you’re self-employed, you’ll make repayments as part of your tax return.

Alternative Student Loan Options in the UK

Aside from government loans, there are also various private loans and other forms of credit available for UK students. These may be offered by various banks, financial institutions, and specialised lenders.

Private loans or other forms of financing may be helpful for students who need additional funding beyond what is offered by the government, or who are ineligible for maintenance loans due to their household income. However, they may have higher interest rates, less favourable terms and stricter eligibility criteria compared to government-backed loans.

Each lender will have their own financial products with different fees, eligibility requirements and interest rates. It is important to research each provider thoroughly to determine which is the best fit for your individual needs.

Personal Loans for Students

Personal loans, offered by banks and other lenders, can allow students to borrow a fixed amount to cover tuition, living expenses, or other education-related costs.

Unlike government-funded student loans, banks (UK) do not typically offer dedicated “student loans”. Instead, students are usually free to apply for most types of personal loans that the bank offers. However, there are some specialised lenders that offer loans designed specifically for students.

These loans may be secured or unsecured and may have fixed or variable interest rates. Rates may vary based on factors such as credit score, loan amount, and loan term. Repayments are typically made in fixed monthly instalments over a set period.

Private student loans may require a good credit history or a guarantor, and unlike government loans, repayments usually start right away (no matter what you earn). The interest rates may also be higher than government-backed loans, leading to potentially higher costs.

Do Student Loans Affect Your Credit Score?

Government-backed student loans are not reported to credit reference agencies. This means they do not appear on your credit report and do not directly affect your credit score. Whether you’re making repayments or not, if you’re following the rules set out for repayment, these loans won’t impact your credit rating.

However, if you apply for a mortgage, personal loan or other form of credit, your student loan repayments can be taken into account when the lender conducts an affordability check. This could influence your chance of approval.

Private student loans are treated like any other form of borrowing. If you take out a private loan while you are a student–such as a personal loan, a payday loan, a guarantor loan or a consolidation loan–it will appear on your credit report. Consequently, your behaviour in managing that loan can affect your credit score.

Making repayments on time and managing the private loan responsibly will likely raise your credit score. Conversely, missing payments or defaulting on the loan can negatively affect your credit score.

Student Loan Eligibility Criteria

Before applying for any form of loan in the UK, it’s important to understand the eligibility criteria set by the loan providers. Meeting the basic requirements is crucial for being approved for a loan, and failing to do so can lead to unnecessary time and effort wasted on the loan application process.

If you are applying for government-supported student finance:

  • You must be a UK national or have settled status and have lived in the UK for at least 3 years before the start of your course.
  • The university or college must be in the UK and recognised by the government.
  • The course must be a recognised full-time or part-time undergraduate or postgraduate degree.
  • There may be age restrictions, particularly for postgraduate loans.
  • If you have previously studied at a higher education level, it may affect your eligibility.
  • Your eligibility for a maintenance loan, which helps with living costs, may be affected by your household income and whether you live at home or away.

Private student loan providers, such as banks, may have different criteria that must be met. For example, they will typically assess your credit history and conduct an affordability check. You may need to demonstrate a stable income or have a guarantor willing to take financial responsibility for your loan repayments if you’re unable to.

Being rejected for a private loan may harm your credit score. It’s crucial to maintain a healthy credit profile and consider all of your financial obligations before applying.

Other Types of Financing for Students

If you are not interested in taking out a private or government-backed student loan, there are a number of alternative ways to potentially fund your higher education. These include:

  • Student credit cards: these provide students with a credit limit to spend on purchases, with the option to carry a balance. Interest is charged on any balance not paid in full by the due date, and minimum monthly payments are required.
  • Student overdrafts: these offer a specific amount that students can overdraw on their bank account. There may be an interest-free limit, with interest charged beyond that, and the overdraft is repaid as funds are deposited into the account.
  • University scholarships: these may be offered based on academic achievement, talent, or specific criteria such as background or field of study.
  • Bursaries and grants: Various universities, charities and other organisations provide bursaries and grants to students who meet specific criteria. These are not repayable.
  • Company sponsorship: Some companies offer sponsorship programs for students studying in fields relevant to their industry.

It’s important to note that private loans, credit cards and overdrafts come with risks and responsibilities that require careful consideration. If you break the repayment terms, your credit score may be affected, and legal action may be taken against you.

Strategies for Managing Student Debt

Managing debt can be a daunting task if you have taken out a private loan, where repayments are not based on your income. But with some careful planning and decision-making, it is possible to stay on top of your repayments and keep your credit score healthy. Here are some strategies to consider:

01. Create a Budget

Start by creating a budget that takes into account your monthly income, expenses, and private student loan repayments. This will help you see how much money you have left over each month to put towards other financial goals, such as savings or paying off other debt. Consider using online budgeting tools to help you keep track of your spending.

02. Pay More Than the Minimum

If you can afford it, try to pay more than the minimum monthly repayment. This should help you pay off your private loan faster and save money on interest in the long run. You could also consider making extra payments whenever you receive a bonus or windfall. However, be sure to check the terms and conditions, as there may be fees for making overpayments or paying off the loan early.

03. Prioritise Your Payments

If you have multiple loans or debts, prioritise paying off the ones with the highest interest rates first. This could help you save money on interest over time. If you are struggling to make repayments, you can contact your loan provider to discuss your options, such as temporarily reducing your payments or delaying them.

04. Consider Consolidation

If you have multiple private loans with different interest rates and payment dates, consolidating them into a single loan could help to simplify your finances. It may also lower your monthly repayments and potentially save you money on interest.

However, be aware that consolidation loans might not always be the best option for everyone. Interest rates may vary according to your credit score, and depending on the loan term, you may end up paying more overall.

Apply with Consolidation Expert to explore your options with our free online eligibility check.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

Student Loan FAQs

In the UK, there are several student loan options available. The government offers student finance in the form of tuition fee loans and maintenance loans. You can also apply for personal loans, overdrafts and credit cards through banks and other financial institutions. It’s important to research and compare the different options to find the best fit for your needs.

Government-backed student loans in the UK do not appear on your credit report and do not directly affect your score. However, private student loans are treated like other forms of credit and can affect your credit score, both positively and negatively.

Applying for a private student loan may result in a hard credit inquiry, which can have a small, temporary impact on your credit score. Responsible management of private student loans, i.e. making repayments on time and in full, can positively impact your credit score. Missing a repayment on a private student loan can negatively affect your credit score, as it may be reported to credit reference agencies.

For government-backed student loans, repayments begin once you earn above a certain income threshold. If you are employed, repayments are automatically deducted from your salary. If you are self-employed, you make repayments upon declaring your income. The repayment amount is based on your income, not the loan amount.

For private student loans, the repayment terms vary by lender and may include fixed monthly instalments starting soon after disbursement.

Interest rates determine how much extra you will pay over the life of the loan. For government-backed student loans in the UK, interest is linked to inflation and income, so it may vary over time. The added interest won’t raise your monthly repayments but may mean the loan takes longer to pay off. For private student loans, the interest rate may be fixed, or variable, and higher rates mean you’ll pay more in interest over the life of the loan.

Consolidation loans combine multiple loans into one, potentially simplifying repayments and possibly offering a lower overall interest rate. This can make managing private student loan debt easier and may save money in the long run. However, consolidation may not be suitable for everyone, and it’s essential to carefully consider the terms and potential impact on benefits like deferment options.

Further reading

Read Is it Possible to Consolidate Short-Term Same Day Loans?
Woman holding coin looking at hour glass
Read Can I Consolidate Holiday Loans with Other Debts?
Worried man stranded on an island, coins falling around him
Read How Can I Pay Off My Debts Faster?
Man running in front of debts with a stopwatch behind