How student loans can affect credit scores
Debts affect credit score and so is student loan having impact over rating.
Your student loan will likely be the biggest borrowing you have ever had and probably
the first. Your way of handling student loan is reflected on your financial health and your
credit rating is foundation of deciding how much you can borrow in the coming years.
Credit rating can be enhanced by making regular payments on time and paying off your
debt on time. Careful planning and financial responsibility will help you eliminate
student loan debt from your life. These few tips will help you to effectively manage your
Make interest payments
With acquiring unsubsidized government or bank loan, there are chances that you might
have to clear interest payments while you are still in school. You should consider this into
your monthly budget and must pay interests on time. Else, there is option of deferring the
interest payments and aggregating them to the principal amount which will be due after
the graduation but you should not opt this way. The interest added in the amount and will
be summed to form fat amount and can be a cause of spotty credit report.
Use the grace period
After graduation, one usually has six- to 12-months grace period before one starts
repaying. During this duration you can search for a job and earn some financial stability.
If you find job for yourself in the grace then you should put some money aside to pay big
into your loan. This will boost your credit score.
Pay it off quickly
Many banks give 10 years time to repay the loan. You can pay the loan sooner by
increasing the monthly payment. You can act wisely by paying extra payment like tax
refund or bonus check, towards the principal amount.
Don’t skip payments
You should show faith in making payments and this will make you credit worthy.
Lenders should be immediately contacted, if any problem is encountered while making
payments. This portrays your cooperation. For your convenience you can make smaller
payments leading to longer term payment. But do not skip it as it will be shown up as
negative mark on your credit reports.
Defaulting means a patch on your credit history for seven years. Your creditors will
approach you for payments, if you default. Your lender can garnish your wages and tax
refunds to repay the amount. Student loans are not always forgiven in case of bankruptcy.
One has to still pay government loans. Bankruptcy stays on your credit file for 10 years.
With the money you owe - be it credit card balance, a student loan or a mortgage, the best
way to make your credit history spotless is by making regular payments and soon getting
rid of the balance. This is sure way to improve credit score and earn peace of mind.