How Do Student Loans Affect Your Credit Score?
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Posted By: Helen Hepburn on May 19, 2018 Entering a college is overwhelming for every student who dreams of living his own independent life. Such a “ticket to an adult life” for a grown-up kid is quite expensive for an average American family - the student debt statistics are overwhelming. Students have a choice between federal and private loans, though most of them see no substantial difference between both. There is a lot of information regarding private loans, credit as well as tips for installment loans. Before making a significant loan decision, make sure to learn everything that might influence the sum of money you will have to repay. But as soon as the college is done, here comes a new question: how to repay a student loan back without affecting your financial situation and credit rating? Indeed, student loans can be good or bad for your credit rating. They make a lot of sense for lenders who expect a future college graduate to get a well-paid job and start repaying the loan with a little more interest. Just like on-time payments will contribute to a positive credit history, neglecting those payments will have serious negative consequences on your credit score. So, why having a high credit score is so important? The Role of Your Credit Score Your credit score has a vital role in your financial future, as it gives lenders a general idea of how financially responsible and reliable you can be. Using this relevant information, lenders decide how risky you are as a credit payer. A credit score number varies from 300 to 900, the higher – the better. If your score is lower than the average point, you cannot qualify for loans unless you find a co-signer with a better credit score. Monitoring your credit score is possible and even advisable to have a clear picture of your credit trustworthiness. Pulling your credit score is possible in 2 ways, through the hard or soft pull. Soft pulls show you only the number of your credit rating and have no harm on your credit rating. On the other hand, hard pulls can affect your rating quite badly, that’s why they are utilized only several times per year by your lenders or employers. How Student Loans Affect Your Credit As Personal Money Service specialists confirm, student loans have the same effect as most types of debt. If you make on-time payments, your credit rating will not be affected. If you miss payments terms, this might lead to a decrease. Repayment of your student loan creates a huge problem for many American college graduates because they have to find a job almost instantly after graduation in order to start your repayment period. And the unemployment rate in the United States varies at 8.1%, and unfortunately, a large part of the unemployed individuals consists of college graduates. Not to say, the cost of a college education gets even more expensive year after year. Managing Student Loans In case it ever comes to the point where you can no longer afford to repay a loan, you have several options to help you suspend or reduce the student loan payments: 1. Consolidation Consolidation combines several repayments. If you consolidate a college debt, you may get a longer repayment period. The Federal Direct Student Loan Program allows you to consolidate most of the federal loans. 2. Deferment This means you are going to postpone payments until a later date or temporarily reduce the amount of your loan. To get a deferment, you have to meet certain requirements. Primarily, you must be enrolled at least in one suitable postgraduate school or participate in a graduate fellowship program. Also, you must be unemployed or prove you experience some economic difficulties (but no longer than 3 years). The last reason for a deferment is an enrollment in the Armed Forces. 3. Forbearance Like a postponement, forbearance allows you to temporarily stop making payments on your loan, lessen the number of payments or extend the repayment time. But why they are 2 different terms? The first difference is the reason why you are asking to postpone the loan. Forbearance is accepted if you experience financial difficulties, have medical expenses concerning your decease, or change your employment. There can be some other reasons acceptable to your lender. The second difference is the fact that during a forbearance you continue to accumulate interest at the set rate. Conclusion: every single action that concerns your student loan is recorded and has a certain impact on your future credit score. Remember that getting a deferment or forbearance is just a temporary delay of the problem. Sooner or later, the loan is going to hit you and your score quite hard. The only solution is being a diligent payer. If you enjoyed this article, Join HBCU CONNECT today for similar content and opportunities via email! |
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Helen Hepburn
From San Bruno, CA Bethune Cookman University class of 2013 Member Since May 2018 |
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