How Missing One Student Loan Payment Can Destroy Your Credit

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If you have student loans and have looked at your credit reports, you might’ve noticed there are multiple entries for your loans.

That’s because each disbursement can be reported as a separate loan, even if you make just one repayment each month. And while a student may get just one federal loan for the year, it will usually be given to them in two or more disbursements. Multiply two or three disbursements over a four- or five-year period, and those accounts add up pretty quickly.

This reporting can negatively impact student borrowers in two ways when you’re first taking out your loans:

1. When newly reported, each disbursement/loan is considered a new loan, which can mean a slight reduction in your credit score due to the presence of a “new account” each time; and

2. With each new disbursement appearing as a new loan, your ‘average age of accounts’ can remain low and result in a lower score than if the average age were higher.

The late-payment smackdown

That might not be a big deal while you’re in school, and as those accounts age, your credit scores will improve with timely payments. But what if you make a late payment on that one repayment you make each month? Yep, that multiplier effect can hurt you again, and pretty badly. Suddenly that one 30-day late payment shows up as 12 or 15 late payments. Two late payments? Ouch. Your credit scores have probably taken a beating.

“These loans are reported by the bureaus as installment loans with the payment history updated each month,” according to Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions.

That’s actually a bright spot for student loan borrowers because installment balances don’t have the same scoring impact as revolving balances do in credit utilization calculations (the amount of outstanding debt you have in relation to your available credit). But still, if you’re making late payments, or skipping them altogether, you need to do something, and quickly.

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