If you’ve graduated college within the last few years, chances are you’re paying off student loans. The way in which you handle your student loans during the repayment phase can have a significant impact–positive or negative–on your credit history and credit score.

Your main goal when paying back student loans is to make your payments on time. Being late with even one or two loan payments can negatively affect your credit score. If you are in default on your student loans, don’t ignore them–they aren’t going to go away. If necessary, contact your lender about loan rehabilitation programs; successful completion of such programs can remove default status notations on your credit report. Of course, if you are making your loan payments on time, make sure that any positive repayment history is being correctly reported by all three credit bureaus.

Even if you are paying your student loans in a timely manner, having a large amount of student loan debt can have an impact on another important factor that affects your credit score: your debt-to-income ratio. Having a higher-than-average debt-to-income ratio could hurt your chances of obtaining new credit if a creditor believes your budget is stretched too thin, or if you’re not making progress on paying down the debt you already have. Fortunately, there are steps you can take to help improve your debt-to-income ratio:

  • Consider a graduated repayment option in which the terms of your student loan remain the same but your payments are smaller in the early years and larger in the later years.
  • Consider extended or income-sensitive repayment options. Extended repayment options extend the term you have to repay your loans. You’ll pay more interest over the long term, but your monthly payments will be smaller. Income-sensitive plans tie your monthly payment to your level of discretionary income; the lower your income, the lower your payment.
  • If you have several student loans, consider consolidating them through a student loan consolidation program. This won’t reduce your total debt, but a larger loan may offer a longer repayment term or a better interest rate.