How Student Loan Deferment May Affect Your Credit Score

Pausing student loan payments through deferment might seem like it would harm your credit, but it doesn't directly. Here’s a look at how the process actually works and its potential indirect effects.

1. Formal Agreement is Key: You must apply for and receive official deferment status from your loan servicer. If you stop making payments without this agreement, your account will be marked as delinquent, which will negatively impact your credit score.
2. Neutral Credit Reporting: Once approved, your servicer reports the loan to credit bureaus with a "deferred" status. This is considered a neutral notation and does not lower your score on its own.
3. Interest May Still Accrue: On unsubsidized loans, interest typically continues to build during deferment. This interest may be capitalized, or added to your principal balance, increasing the total amount you owe.
4. Pauses Positive Payment History: While deferment protects you from negative marks, it also means you are not making on-time payments. This pauses the opportunity to build a positive payment history, a key factor in credit scoring models.

How Much Will a Student Loan Deferment Affect Your Credit Score?

A student loan deferment itself won't tank your credit score, as it's an approved pause in payments. Here are a few key considerations for how it can influence your credit profile:

• No Negative Reporting: Student loan deferment is a formal agreement with your lender, so it isn't reported as a negative event. Your credit report will show the account is in deferment, which is a neutral status.
• Credit History Length: Keeping your student loan account open during deferment helps lengthen your credit history. A longer credit history is a positive factor for your credit score over time.

How You Can Avoid a Student Loan Deferment Affecting Your Credit Score

Consider an Income-Driven Repayment Plan

An income-driven repayment (IDR) plan adjusts your monthly payment based on your income. This could result in a very low or even $0 payment that still counts as being on time, which can be a better alternative for your credit than a standard deferment.

Make Interest-Only Payments

For unsubsidized loans, interest accrues during deferment. Making interest-only payments prevents your loan balance from growing. This proactive step shows lenders you are responsibly managing your debt, which can positively influence how your credit history is viewed, even with the deferment in place.

Choose the Right Card to A Student Loan Deferment

Your credit score is a dynamic number, not a permanent grade, meaning you can always take steps to improve it. According to one expert guide, most people see meaningful changes within a few months of consistent positive financial behavior.

• Monitor your credit reports. You can get free reports from the three major bureaus to check for and dispute any inaccuracies that might be hurting your score.
• Set up automatic payments. Payment history is a huge factor in your score, so automating payments ensures you never miss a due date.
• Lower your credit utilization. Aim to keep your balances below 30% of your total credit limit by paying down debt or requesting a limit increase.
• Become an authorized user. Being added to an account with a long, positive payment history can help improve your own credit file.
• Limit new credit applications. Too many hard inquiries in a short period can lower your score, so use prequalification tools and space out applications.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as installment loans and revolving credit cards.

The Bottom Line

Student loan deferment won't directly harm your credit score, as payments are officially paused, not missed. However, interest may still accrue, potentially increasing your total debt over the loan's lifetime.

Frequently Asked Questions

Will my credit score drop when my student loan deferment ends?

Not necessarily. If you resume making on-time payments as soon as the deferment period concludes, your credit score should remain stable or potentially improve over time.

Does applying for deferment involve a hard credit check?

No, applying for student loan deferment does not require a hard credit inquiry, so the application process itself will not directly impact your credit score.

Can deferment hurt my chances of getting other loans?

It might. While deferment doesn't lower your score, lenders consider your total debt. A large deferred loan balance could affect your debt-to-income ratio negatively.