Despite growing student loan debt and rising default rates, a recent FICO report revealed that student loan risk does not have an effect on a consumer’s credit score.
“Specifically, we looked for any evidence indicating that the risk associated with student loans was not being adequately captured by the FICO acore,” the report said, according to eCredit Daily. “Analysis of general risk…indicates that student loan debt is adequately captured by the FICO score. This is an important finding, considering that high levels of student loan debt are reflective of an increased level of general credit risk when looked at in isolation. This indicates that the additional risk observed in student loans is already being captured through the variables currently utilized by the FICO score algorithm.”
In 2005, the average student loan debt totaled $17,233, though the number roseto more than $27,253 by 2012 — a 58 percent increase over seven years. The average credit card and auto loan balances, however, decreased over the same time period.
FICO said that consumers should take note that credit card debt has a “much greater ability to influence” FICO scores than installment loan debt like student loans.
“This is because credit card indebtedness has a stronger statistical correlation with borrower performance, in other words, it’s more predictive of credit risk,” FICO said, eCredit Daily reports.