Will Applying for a Student Loan Hurt My Credit Score?

Updated April 15, 2022

So you’re looking for student loans to finance your education – good for you! Student loans can be an option to bridge the gap when financial aid doesn’t cover the full cost of your tuition and college expenses, which is the case for about 43 million Americans. Nonetheless, it’s smart to think about how student loans can affect your financial future and whether applying for a student loan will hurt your credit score.

First off, let’s explain what a credit score is. Simply put, it’s a three-digit number that indicates your relative credit risk. One of the most common credit-scoring model is a FICO® score. Ranging from 300 to 850, the higher the number, the more likely (theoretically) someone is to pay their bills on time. Factors that determine your credit score include:

• Payment history
• Your debt-to-income ratio (DTI)
• How established your credit is
• Credit mix
• Recent applications for credit

Needless to say, a major indicator of your financial well-being is indicated in your credit score.

How Applying for Private Student Loans Affects Your Credit Score

Whenever you apply to take out a loan, a credit inquiry from one or several credit reporting agencies will likely occur. If you have a solid credit history, the effects are usually minimal. However, the effects will typically be larger for someone with little-to-no credit. According to an article by Bev O’Shea posted on Nerdwallet, whatever impact your credit score suffers should fall off after 12 months, and after about 24 months, the inquiry should disappear from your credit report entirely.

There’s also an important distinction between a “soft” and “hard” credit inquiry.

A “soft pull,” as it’s known, can be done just in connection with pre-qualification for a loan, whether it’s a credit card offer you receive in the mail, mortgage, student loan, or car loan. Some employers will do a soft pull of your credit as well. Soft pulls do not impact your credit score.

A “hard pull” generally requires your consent and happens when you apply for the credit you’re seeking. It’s the hard pulls that show up on your credit report. It’s important to monitor your credit report and dispute any hard inquiries you didn’t authorize.

In the case of private student loans, a prequalification will not typically affect your credit, whereas applying for a loan will show up on your report.

Applying for Multiple Private Student Loans

So, what if you submit multiple applications? Will they all affect your credit score? It’s hard to know for sure, as credit-scoring model companies don’t provide a lot of detail about their models. Generally speaking, credit-scoring models appear to take into consideration that if an applicant has multiple inquiries for a student loan they may be shopping for the best rate. One key point is that the closer those inquires are together, the less impact it may have on your credit score.

In other words, shopping around to find the best loan option for you should not affect your credit score dramatically and is likely not a major cause for concern. By applying for multiple private student loans, you can see which lender will actually give you the best rate – important when it comes to saving money over the life of your loan.

ELFI offers a variety of private student loan options for financing your undergraduate or graduate education, as well as private student loan options for parents.* Check out our full list of frequently asked questions or contact ELFI at 1-844-601-3534 to speak with a Personal Loan Advisor.

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