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Student loans can affect your credit score—here's why you should make sure you pay them on time

Student loans are a type of installment credit, which means they show up on your credit report.

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The idea that your student loans have little impact on your credit score is a common myth.

The two accounts that regularly show up on credit reports are installment credit and revolving credit. Student loans — in addition to car loans, personal loans and mortgages — are considered installment loans, and they factor into your credit score.

For this reason, it's important that you don't miss a payment. Your payment history (whether you pay on time or late) is the most important factor that determines your credit score, counting for over a third (35%) of your FICO Score calculation.

"Default on a few student loans, and you'll see just how much student loans affect your scores," financial expert John Ulzheimer, formerly of FICO and Equifax, tells CNBC Select.

It's important to consistently pay your installment loan(s) on time every month. Doing so can help you build credit and lead you on the path to establishing a good credit score.

Think you'll have trouble remembering to pay your loans by the due date each month? Below, we share a universal tip that many use to stay on top of this monthly financial task.

A helpful tip for paying your student loans on time

If you struggle to remember to pay your student loans (or any bills, really) each month, there's an easy fix: autopay.

In order to build good credit, you need to pay all your bills on time, not just student loans but also your credit cards, utilities and medical bills. With so many different due dates to remember, automating the payments can help ensure your bills get paid on time, every time.

When you automate your student loan payment, you schedule a recurring payment that automatically withdraws the same amount from your bank account on the same day every month.

Some student loan companies encourage you to pay on time by giving you a discount on your interest rate if you set up autopay.

Here's a way your bill payments can help you increase your credit score: *Experian Boost® is a free feature that lets you add your on-time phone, internet, cable, utility (gas, electricity, water) and streaming payments like Netflix®HBO™ and Hulu™, to your Experian credit report. According to its website, average users receiving a boost reported a 13-point increase in their FICO® Score.

Bottom line

There's a good chance you may have taken a break from paying your federal student loans during the pandemic thanks to the interest-fee forbearance program that's been in place since the CARES Act passed in March. But now is a good time to prepare for repayment to resume come January so you don't risk missing a payment and hurting your score.

Those monthly student loan payments can be a drag, but by setting up autopay you can pretty much forget about them and turn your focus to more interesting personal finance goals, like saving for a much-needed vacation.

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*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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