Student Loans – How Can It Affect Your Credit Score

It cannot be denied that the costs of taking higher education are continuously rising, the majority of graduating students have been dropping out of school with summed up debts. This debt can really have an impact on their credits in several ways.

Knowing how student loans can affect their credit can be helpful in preventing the possible usage of emergency funds to pay for expensive credit payments if the score is already damaged.

First, it is important to know what is a credit score. Credit report normally contains data about almost all credit you have and that includes credit cards, student loans, car loans, and even housing loans. The credit bureau or any other creditor may use this data to create a score that meticulously compares data about you to the record of a base sample of clients with almost the same profile as yours. The greater your score is, the more likely you are to be a good credit risk, and the better your opportunities of getting credit at a good interest rate.

So how to prevent your score while getting rid of your student loan?

Make it a habit to settle your dues on time. Paying your student loans regularly, without any delays, is very important. Why? Missing a single payment will surely hurt your credit record and score. It is not good to treat your federal loans any different than your personal ones. Missing a single payment on both of them will badly affect your score similarly.

Keep in mind that student loans are reported and perceived as installment loans. In the majority cases, student loans are reported to credit groups as installment loans. This means that repayment is settled on a regular basis with fixed amounts. Because of this, missing one on student debt usually causes a lesser bad effect than if you were to forget paying your credit card. This means that if you can just afford to pay one, it appears to be more beneficial for your score to make the credit card payment.

Do you know that deferred loans can still affect your credit score and limit? Even if your student loans have been deferred, they are still relayed to credit companies. The status of these loans is not taken as bad or good, but the balance will still be reported. This will heighten the balance of debt you have on your record, which could damage your ability to apply for future loans.

Always say no to default. Defaulting on your student loans must be prevented at all means. This can cause problems on your credit score for up to seven years even after the full amount has all been settled. If you choose default, you may be chased for payments and could be up against legal issues. Your lender may likewise take cash from your salary and tax refunds to pay for the loan. Even though you cannot cover the full monthly due, you have to call your lender and check if you can change to a new payment term that can lessen your full debt.

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