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How to Manage Student Loan Debt to Positively Impact Your FICO Score

Blog: Enterprise Decision Management Blog

Student Loan Debt

Student loan debt in the United States has reached an all-time high. Student loan debt can also be a part of a consumer’s financial journey as they look at buying a car, a house and even into retirement. With April being Financial Literacy month, FICO is exploring the credit behavior of young people with a student loan actively in repayment to determine the behaviors that are driving FICO® Score increases and decreases.  How many are exhibiting positive behaviors and driving score increases?  How many are exhibiting less favorable behaviors, leading to score decreases?

Using a nationally representative sample, we identified 10 million scorable consumers age 18 to 30 who had a student loan actively in repayment as of October 2016.

Among those within this profile, we found 22% had a significant increase in their FICO® Score 9 between October 2016 and October 2017.  We defined a “significant increase” as those with a 40+ point change in score, and termed this group the “score increasers.” Another 15% had a decrease in their score of 40 or more points (“score decreasers”), and the remaining 63% had a relatively stable score change of less than 40 points between the two periods.

To better understand and quantify the financial actions driving the “score increaser” and “score decreaser” populations, we looked at the credit behaviors of these two groups across a variety of dimensions such as amounts owed, on-time payments, and searches for new credit.

Our analysis found that score increasers were more likely to reduce their amounts owed than score decreasers.  “Amounts owed” makes up about 30% of the FICO score calculation; not having high revolving balances and paying down installment debt are two indicators of a healthy credit profile.  On average, score increasers reduced credit card balances by 28%, while score decreasers increased their credit card balances by 78%.  Over the course of a year, the average amount score increasers paid down on installment loans was 76% higher than that of score decreasers.

Amounts Owed

We also found that as of October 2017, score decreasers were three times more likely to have had a missed payment in the past year compared to score increasers. “Payment history” is the most important category within the FICO score, comprising ~35% of the total score calculation.  The FICO score rewards on-time payment behavior, and dings those who have frequent missed payments.

Table of Payment History

Score decreasers also tended to apply for more new credit during the period evaluated.  The number of inquiries associated with a consumer applying for credit increased 9% for the score decreasers, while score increasers’ inquiries decreased by 18%.

percentage seeking new credit

FICO research has found that opening several credit accounts in a short period of time represents greater risk of future missed payments- especially for people who don’t have a long credit history.  The amount of “new credit” a borrower has makes up about 10% of the overall FICO score calculation.

As the data and research have shown, young consumers with active student loans who showed significant score improvement tended to pay their bills on time, pay down debt and apply for credit less frequently.  Those whose score decreased tended to have delinquency and to take on more debt.

To successfully manage student financial health, it is helpful to keep three things in mind: pay bills on time, reduce amounts owed, and apply for new credit only as needed. It can seem overwhelming to those burdened with student loans, but the goal of an improved or high FICO® Score is achievable.  To learn more about the five factors that make up your FICO® Score, and review educational tools and resources to help you improve your FICO® Score, go to

The post How to Manage Student Loan Debt to Positively Impact Your FICO Score appeared first on FICO.

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