Why Are There So Many Student Loans on My Credit Reports?

Regardless of what you studied in college, chances are you never took a course that explained how your student loans would impact your credit after you walked across that stage and got your degree handed to you.

Yet, it’s very important to understand exactly how student loans will affect your credit and, by extension, your ability to borrow money, finance important purchases, or potentially even to land a job in the future. Your student loans are serious business.

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    Why Multiple Accounts?

    The first surprise in store for you may be that your student loans will likely show up as not just one, but actually multiple accounts on your three credit reports. This is true even if you only receive a single monthly bill or only make a single monthly payment to your student loan servicer.

    The reason this occurs is because your student loans are normally reported to the three major credit bureaus (Equifax, TransUnion, and Experian) on a disbursement by disbursement basis.

    Here’s how it works. Each time you took out a new student loan — as often as every semester for some graduates — a new and separate account was opened. By the time you graduate, you could have as many as eight individual loans now showing up on your credit reports for a standard, four-year undergraduate degree. One degree, up to eight separate loans appearing on your credit reports.

    How Student Loans Impact Your Credit

    When you take out a student loan, it is virtually guaranteed to find its way onto all three of your credit reports because of the Department of Education’s credit reporting requirements. The impact your student loans will have on your credit reports and scores is going to depend entirely on how you manage the accounts.

    Student loans have the potential to help you build positive credit, provided you avoid making late payments. On the other hand, student loans can inflict a lot of damage on your credit scores if you don’t pay them as agreed – damage that could be magnified because your loans are reported separately to the credit bureaus.

    If your student loans are combined into a single billing group, whenever you make a payment to your student loan servicer, that payment is divided and distributed among each of your individual accounts. So when your payment is received on time, all of the loans are reported as “on time” or “pays as agreed” to the credit bureaus.

    However, if don’t send a payment into your student loan servicer on time, then you could wind up with late payments reported on not just one account, but on every student loan on your credit reports.

    Consolidating Your Student Loans

    Combining your multiple student loans into a new, single account through student loan consolidation can often be a smart move for your credit scores. For starters, reducing the number of accounts on your credit reports with outstanding balances will often impact credit scores to the good side.

    The second benefit consolidation may offer you is defensive in nature. Consolidating your outstanding student loans into a new account may help to protect your credit from the possibility of multiple late payments in the future.

    Of course, if you want to maintain good credit scores, then you need to keep paying all of your bills on time, every time. Still, combining multiple student loans into a new account may enable you to play a little credit defense, just in case.

    And, if you want to be even more strategic, you could pay off your student loans with a newly opened personal loans. Personal loans are statutorily dischargeable in a bankruptcy, while student loans are not. And while nobody wakes up thinking, “I’m going to file for bankruptcy one day,” at the very least you’ve now got that as a safety net in case you ever needed it.

    John Ulzheimer

    Contributing Writer

    John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. The author of four books on the subject, Ulzheimer has been featured thousands of times over the past decade in media outlets including the Wall Street Journal, NBC Nightly News, The Los Angeles Times, CNBC, and countless others. With professional experience at both Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.