Ask a Hero: Does a $0 Student Loan Payment Hurt My Credit Score?

Dear Student Loan Hero,

Because I have a low income, my current payment under my income-driven repayment plan is now $0. But I worry about how not needing to actually pay anything for these monthly payments might be affecting my credit score. Is there any reason for me to be concerned?

Dear Student Loan Borrower,

Your question is worth considering for any federal loan borrower repaying their debt on an income-driven repayment (IDR) plan. After all, a $0 monthly “payment” that also counts toward loan forgiveness programs might sound too good to be true.

That could explain why you’re wondering about any potential trade-offs relating to your credit score.

The fact that you’re repaying your loan under an IDR plan is not reported to credit bureaus. However, a $0 payment would affect one of the five components of your credit score. Specifically, payment history — which accounts for 35% of your FICO score — is positively affected.

Even though no money is changing hands, a $0 payment is still a payment in the eyes of the bureaus. Your credit report will show that you’re submitting these pseudo-payments on time, keeping pace with your loan term; your debt is not considered delinquent in any way.

With that said, there could also be an adverse effect from a $0 payment. Because you’re not decreasing your loan balance each month, interest accrues and capitalizes. Aside from increasing the cost of your repayment, you’re also pushing your debt-to-income (DTI) ratio in the wrong direction.

The bureaus don’t use DTI to calculate your credit score, but lenders are known to employ it when deciding whether to extend credit and what interest rate to charge.

Say you want to refinance your student loans, or buy a car or a home in the near future. Banks, credit unions and online companies will consider your DTI alongside your credit score when determining your eligibility and rate.

It’s highly unlikely that your $0 monthly payment will cause severe damage. Still, be aware that your hopefully healthy credit score could be edge lower, if only slightly, because of your DTI.

If you want to brush up further on IDR plans and your credit, consider reading these helpful guides:

Good luck in life and repayment,

Andrew P.

Student Loan Hero

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