You can never be sure about how much you’re buried under your student loan if it’s under $100,000 or $200,000. While struggling with your studies and stretching off to pay your debt, you are likely to stress out while thinking about your future and may have to compromise on your studies.
One thing you really need to be sure is about as you say good bye to your student loan debt is your credit score because you might after college, you might have to opt for various other loans such as:
- Home Mortgage
- Insurance Policy
- Auto Loans
Each of these loan programs would depend upon your overall credit score from your educational program. A bad credit score would eventually cause these loan programs or banks to penalize you for a much higher interest rate return or even reject your application.
The question here is ‘do student loans affect your credit score or not?’ Which must be answered in order to know if it can facilitate your future loan programs or not. Student loans do affect your credit score in several ways as it builds a foundation for future credit experiences, from your credit cards to home mortgages, insurance policies and auto loans. Successful payments of your student loans form a strong credit history and leads to a road of a very bright financial future.
How Does A Student Loan Affect Your Credit Score
Student Loans are considered as installment loan with a starting balance which has to be repaid over a time period with a fixed number of payments. These loans are weighted less against your credit score than other types of loans like home mortgages or auto loans and much less than a credit card debt.
Repaying your student loan after graduation without missing any payments is the best way to build a good credit score; early payments for your student loan would give the impression of loss of income (interest) on the loan to the lender and would mean shorter term for your future loans with a much higher interest rate.
Will My Student Loan Hurt My Credit Score
Not really, student loan balances don’t really matter. According to FICO, 7% of consumers with more than $50,000 in student loan debt have excellent scores of over 800 points. Balances on credit cards impact your credit score but not for installment loans such as a student loan as it’s the payments that matter.
The only thing which might affect your eligibility to take out other future loans would be the remaining balance with your student loan debt.
It All Has to Do with Payments
It is most likely to do with making payments on time for student loans. Making late payments can cause your credit score to drop, for example, an average credit score of 580 points could lose up to 60-80 points from just one 30-day delinquency. An excellent score will lose more between 90 to 110 points. Many late payments hurt more but if you are having trouble to make your timely payments; you can always apply for other source of income in order to ‘catch-up’ on your payments. You can easily resolve your delinquency by establishing an income based repayment, income contingent repayment or another repayment option to make your credit score climb back quickly.
Overall focus should always be on making student loan payments on time which directly impacts your credit score as it is treated the same way as other types of loans. Students should always keep a track of their credit score through a credit score report just in case if they are denied a loan due to a lower score.