If your student loan payments are past due and your credit score just dropped, you're not imagining it, and you're not alone. More than 9 million Americans are currently behind on federal student loan payments. The good news: you do not have to wait until your loans are current to start building positive credit history again.
Can You Build Credit While Your Student Loans Are Still Delinquent?
Yes. You do not have to wait until your student loans are current to start adding positive information to your credit file. A delinquent (past-due) student loan will keep reporting as a negative mark each month it stays unresolved, but you can add new, positive payment history on a separate account at the same time. Those on-time payments do not erase the delinquency, but they do become part of your credit file and can help offset some of the damage over time.
Tools like the Ava Credit Builder Mastercard report account activity to all three major credit bureaus: Experian, Equifax, and TransUnion.8 You do not need a clean credit history to start.
What's Actually Happening With Student Loans and Credit Scores Right Now
The numbers are stark. According to TransUnion, 31% of federal student loan borrowers with a payment due were 90 or more days past due as of April 2025, nearly triple the pre-pandemic rate of 11.7% recorded in February 2020. Federal student loan payments were paused for roughly 43 months during the COVID-19 emergency and resumed in October 2023. A grace period shielded borrowers from negative credit reporting for about a year after that, but once it ended in late 2024, delinquencies began showing up on credit reports in force during the first half of 2025.
Data from the Federal Reserve Bank of New York shows how sharp that impact has been. In the first quarter of 2025 alone:
- About 2.2 million student loan borrowers saw their credit scores drop by 100 points or more
- More than 1 million saw drops of 150 points or more
- Roughly 2.4 million borrowers who previously had scores above 620, a common threshold for "good" credit, were pushed below it
A drop that size is not distributed evenly. A separate TransUnion analysis found that borrowers who started with the highest, or "super-prime," scores saw the steepest average declines, up to roughly 175 points, while borrowers who already had lower, subprime scores saw smaller average drops of around 42 points. That gap exists because a borrower with a cleaner file has fewer other marks to absorb one new delinquency, so it stands out more.
FICO confirmed the ripple effect nationally: the average U.S. FICO Score fell to 715, according to data FICO reported in April 2025, a decline it attributed largely to resumed student loan delinquency reporting.
Why Do Student Loans Hit Your Credit Score So Hard?
Your credit score is built from five weighted factors, and a student loan touches several of the biggest ones. Payment history, worth about 35% of a typical FICO Score, is the single largest factor, and a missed student loan payment is treated the same way a missed credit card or auto loan payment is: as a negative mark that can stay on your credit report for up to seven years. Credit utilization and the number of accounts with negative, or "derogatory," marks matter too, especially once a loan moves into default.
The cascade effect is real. According to TransUnion's analysis, nearly every borrower who was not already in the subprime range and who fell 90 or more days past due on a student loan dropped at least one full credit risk tier (the score band lenders use to price risk), and many dropped two or more tiers. A drop below the "good" credit range, commonly 670 and up depending on the scoring model, can mean higher interest rates on auto loans, a harder time qualifying for an apartment, and, in some job categories, a flag during a background credit check. According to FINRA, your credit score can influence far more than loan approvals, including insurance rates and rental applications, which is part of why a sudden drop feels so disruptive.
Key takeaway: One missed student loan payment does not just hurt in isolation. It can knock you into a lower credit tier that affects the rates and approvals you see across other parts of your financial life.
What to Do Right Now: A Practical Action Plan
Step 1: Contact Your Loan Servicer Immediately
Don't wait for a letter or a collections call. Federal loan servicers have programs built for exactly this situation, and reaching out early puts you in control of the timeline.
Income-Driven Repayment (IDR) plans. Under Income-Based Repayment (IBR), the main federal plan available after a court order ended the Saving on a Valuable Education (SAVE) plan in March 2026, payments are set at 10% or 15% of your discretionary income (your income above a set threshold), depending on when you first borrowed. If your income is low enough relative to the federal poverty guideline, your calculated payment can be $0 a month, and a $0 IDR payment still counts as an on-time payment that protects your credit.
Deferment or forbearance. These pause your payments temporarily. Interest may keep accruing during that time, so treat this as a short-term bridge while you set up something more permanent, not a long-term fix.
The Fresh Start program. If you're already in default, this Department of Education program can bring your loans back into good standing without some of the harsher default consequences, such as wage garnishment.
TransUnion's research has repeatedly urged borrowers who are falling behind to contact their servicer as early as possible to review options like these before a loan moves further into delinquency or default.
Step 2: Start Building Positive Credit History in Parallel
Here's what a lot of borrowers don't realize: you can work on your student loans and build new positive credit history at the same time. Every month you wait is a month of delayed progress.
This is where Ava comes in. Ava is a credit-building membership designed for people building credit after a financial setback, including a student loan delinquency. There is no interest charged on the Ava Credit Builder Card.
How Ava can help:
- Ava Credit Builder Card. Link it to your bank account and use it for spend you already have within your assigned Spend Limit, such as streaming subscriptions or your phone bill. Those payments are reported to all three credit bureaus.
- Ava Save & Build Credit. A secured, loan-style account where your monthly payments are reported as on-time installment activity, and you receive your savings back at the end of the term. Please verify current monthly payment options and term details at meetava.com/ava-loan before enrolling.
- 74% of Ava members saw positive credit history movement in less than 7 days, based on data for members who activated the Card and stayed enrolled during the tracked period. Individual results vary, and Ava cannot guarantee that your score will increase.
Key takeaway: Building credit while you handle your student loans is not an either/or choice. It's two separate accounts doing two different jobs on your credit file at the same time.
Step 3: Monitor and Dispute Errors on Your Credit Report
You're entitled to a free credit report from each of the three bureaus at AnnualCreditReport.com. The FTC's landmark study on credit report accuracy found that about 1 in 5 consumers had an error on at least one of their credit reports, and errors like these can include mistakes in how a student loan's status was reported.
Check for:
- Incorrect balances or payment status on your student loans
- Accounts that don't belong to you
- Duplicate entries or outdated information
Dispute anything that looks wrong directly with the bureau that reported it. It's free, and corrections often show up in your file within about 30 days.
How Much Does a Damaged Credit Score Actually Cost You?
A lower credit score doesn't just feel discouraging, it can cost real money. Illustrative modeling based on 2023 U.S. national interest rate averages shows that moving from a "Fair" credit score to a "Good" one, representing roughly a 100-point difference, can meaningfully lower the interest rate you would pay on an auto loan, a mortgage, or a credit card balance.3 The exact dollar impact depends on your loan amounts, your state, and current rates, but the direction is consistent: a stronger credit profile tends to mean lower borrowing costs across the board.
Ava's flat membership fee is $5 a month on the annual plan, or $10 a month if you pay month to month.10 Membership fees apply. Weighed against the potential interest savings from a stronger credit profile over time, that's a trade-off worth thinking through for your own budget.
What Active Credit Building Looks Like Today
The old advice was simple: pay your bills, keep balances low, and wait it out. That advice doesn't hold up as well when you've just taken a 150-point hit and need to qualify for a car loan next month.
Building credit in a situation like this tends to work best when it's active and layered, not passive. Here's what that can look like in practice:
- Week 1: Call your loan servicer. Get your payment situation stabilized through IDR, deferment, or forbearance.
- Week 2: Pull all three of your credit reports and dispute anything that looks wrong.
- Week 3: Set up a credit-building account like Ava. Link your bank account and set up automatic payments on things you already spend on.
- Week 4: Set up autopay on your other bills and start tracking your score so you can see what's moving.
You're not trying to fix everything in one week. You're stopping the bleeding and building momentum, and positive payment history adds up the longer it continues.
Why Ava Fits Student Loan Borrowers
Ava was built for people building credit from scratch or after a financial setback, not primarily for people with a clean credit history shopping for another rewards card. It's a way to add positive information to your credit file without taking on new interest-bearing debt.
What that looks like in practice:
- No interest on the Ava Credit Builder Card.
- A flat, transparent membership fee of $5 to $10 a month depending on your plan: membership fees apply, and Ava does not add hidden fees on top.
- Reporting to all three bureaus: Experian, Equifax, and TransUnion all receive your positive Card payment activity, while rent and utility reporting, where available, is limited to TransUnion.
- Two new tradelines (an account entry on your credit report), from the Card and the Save & Build Account, which can help with credit mix (about 10% of a typical score) and credit history length (about 15%): on-time payments help build payment history (about 35%), and the Card's credit limit factors into your utilization (about 30%).
You are not taking on a new loan with interest through the Card. You're adding new, positive tradelines that sit alongside your student loan file and can help offset some of its impact over time, though your credit score may increase or decrease, and Ava cannot guarantee results.
Building Credit for the Long Term
Once your immediate situation is stabilized, a few habits keep the progress going:
- Keep accounts open. Credit history length matters, so keep a credit-building account active even after your file has recovered: the longer a positive tradeline reports, the more it can help.
- Plan ahead for major purchases. If you want to buy a car or a home in the next one to two years, start now. Most lenders like to see 12 to 24 months of clean history after a period of negative marks.
- Build a small emergency fund. Even $500 to $1,000 set aside can keep one unexpected expense from turning into another missed payment, or taking on high-interest debt.
- Stay in contact with your loan servicer. Federal repayment plans and forgiveness programs have changed significantly in 2025 and 2026, and staying in touch keeps your options open as the rules continue to shift.
Frequently Asked Questions
How long do student loan late payments stay on my credit report?
Late payments typically stay on your credit report for seven years from the date of the delinquency. Their effect on your score tends to fade as you add new positive history and as the missed payment ages, but the mark itself doesn't disappear early, which is part of why starting to build positive history now matters.
Will using a credit-building product like Ava affect my student loan payments?
No. A product like the Ava Credit Builder Card operates separately from your student loans. It adds a new tradeline to your credit report without changing your existing loan balance, terms, or servicer.
How quickly can I see movement in my credit score?
It depends on your starting point, what's already on your file, and how the bureaus process new information, so timelines vary by person and results are never guaranteed. Ava reports that 74% of members saw positive credit history movement in less than 7 days under the tracked conditions described above.1 Your credit score may increase or decrease.
What if I can't afford both my student loan payment and a credit-building membership?
Start with your loan payment. Applying for an income-driven repayment plan is free and can significantly lower your required monthly payment, in some cases to $0. Once that's manageable, a flat monthly fee like Ava's $5 to $10 is a smaller ask, and whether it's worth adding depends on your own budget, not a promised outcome.
Should I focus on paying off my student loans or building credit first?
You generally don't have to choose. Setting up a sustainable repayment plan for your student loans and building new positive credit history on a separate account can happen at the same time, and combining both tends to move your overall credit picture faster than doing either alone.
Can I still work on building credit if my student loans are already in default?
Yes. You will want to address the default directly, through the Fresh Start program or loan rehabilitation, since that is what stops the most serious consequences like wage garnishment. Alongside that, you can still add new positive tradelines to your file. Resolving the default and adding positive history are two separate, complementary moves.
Student loan struggles don't have to define your credit future. Borrowers who bounce back fastest tend to be the ones who treat building credit as something active: they contact their servicer, correct errors on their credit reports, and add positive history in parallel rather than waiting for one thing to be perfect before starting the other.
Important Disclosures
Ava Finance is a financial technology company, not a bank. Certain loan and credit services are provided by Pier Lending LLC (NMLS #2451164) in select states. The Ava Credit Builder Mastercard® is issued by Patriot Bank, N.A., pursuant to a license from Mastercard International Incorporated.
Your approval for the Ava Credit Builder Card or Save & Build Account is not guaranteed. Successfully linking your bank account to Ava via Plaid is required for approval. Failure to maintain a Plaid connection may result in termination of your account.
Ava reports your payment activity and tradelines to all three credit bureaus. Rent and utility bureau reporting is limited to TransUnion. Credit bureau reporting is not guaranteed to improve your credit score. Credit bureaus determine scores independently based on multiple factors, including non-Ava transactions.
Ava charges a flat-rate membership fee for access to credit and non-credit products. Membership plans are monthly or annual.
Go to meetava.com for additional important disclosures regarding terms and conditions.
Footnotes
- Data is for the period Jan 1, 2023 – Dec 31, 2023, and describes average outcome for members who subscribed to Ava, activated the Ava Card and were furnished to the bureaus within 7 days, and did not cancel their membership within 7 days of signing up. A credit score increase is not guaranteed.
- According to FINRA: https://www.finra.org/investors/personal-finance/how-your-credit-score-impacts-your-financial-future
- Auto, Mortgage and Credit Card interest payment savings with a 100 point increase from Fair to Good credit. Assuming 2023 US national averages of new car value of $47K, mortgage balance of $244K and credit card balance of $6500. Assuming US national interest rates for Fair and Good credit scores in 2023: 7% for Auto loans, 7.7% for mortgage and 16.9% for credit card balance for good credit; 12.3% for Auto loans, 8.3% for mortgage and 20.2% for credit card balance for fair credit.
- Ava partners with a technology service provider of banking related services, Priority Technology Holdings, Inc., to provide your Ava Secured Loan Account. Money transmission services relating to the Passport Program are provided by Priority, directly or through its subsidiary Finxera, Inc. (NMLS #1168701) or its authorized affiliates and contractors.
- With Ava’s Credit Builder Card and Save & Build Account you add two new tradelines to your credit report that help with your credit mix (10%) and credit history (15%). With each payment made on time you help build your payment history (35%). The Credit Builder Card’s credit limit helps with your credit utilization (30%). Source: https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-affects-your-credit-scores/
- Ava is not a bank. Ava is a technology company that partners with a technology service provider of banking related services, Priority Technology Holdings, Inc., as well as Pier Lending LLC (NMLS #2451164) in certain states to provide the Secured Loan Account. The Ava Credit Builder Mastercard® is issued by Patriot Bank, N.A., pursuant to a license from Mastercard® International Incorporated.
- Your approval for the Ava Credit Builder Card or Save and Build Account is not guaranteed. Successfully linking your bank account to Ava via Plaid is a condition to any such approval. Your failure to maintain a Plaid connection may result in the termination of any credit product you utilize with Ava.
- Ava reports your payment activity and tradelines ("Activity") to all 3 credit bureaus, with rent and utility reporting limited to TransUnion, but does not promise or guarantee specific results. Credit bureaus independently determine credit scores based on multiple factors which include non-Ava transactions. Ava has no influence over bureau processing times and cannot guarantee or predict how the bureaus will interpret or reflect your Activity. Activity may reflect differently across bureaus. Improvements to your credit score cannot be guaranteed. Your credit score may be impacted positively or negatively.
- Ava charges a flat-rate membership fee to access all credit and non-credit products. Membership plans are monthly or annual.
Disclaimer
The content provided on this blog is for informational and educational purposes only and should not be considered financial, legal, tax, credit, or investment advice. Ava does not provide personalized financial advice, credit repair services, or guarantees regarding credit outcomes. Any references to credit history, credit scores, or financial results are illustrative only and may vary based on individual circumstances and factors outside of Ava’s control. Please consult a qualified professional regarding your personal financial situation. Terms, conditions, and important disclosures apply. See meetava.com for additional disclosures and product terms.
