A student loan can boost or harm your credit score, depending on how you manage it. A solid repayment record benefits your score, while a history of late payments or default causes significant damage. Student loan lenders are usually willing to work with borrowers facing problems, so don't hesitate to call them. Doing so can save your credit rating.
Credit Scoring and Student Loans
Credit scoring is a method of helping creditors determine a credit applicant's creditworthiness: A high credit score suggests that the applicant manages credit well and has the ability to meet his financial obligations. Companies that sell credit scores use different criteria in their computation, but get the information used in score development from an individual's credit reports, public records and other consumer data sources. Since student loan lenders and services report a student's loans and repayment history to the credit bureaus, an individual's student loans do have an impact on her credit score.
Student Loan Amounts and Credit Types
Credit scoring systems, such as FICO and VantageScore, factor the amount of money you owe, sometimes called your "debt load," into your credit score. If you owe a lot of money, this can damage your score. However, a student loan can also contribute to the "depth" of your credit history by adding to the mix of credit types (including credit cards and charge accounts) included on your report.
Student Loan Repayment History
Student loan companies regularly report your payment history to the credit bureaus. If you don't make minimum payments, pay late, or stop paying your loan entirely, your credit score will go down. On the other hand, a track record of on-time payments boosts your score and looks great to lenders, landlords and employers. Plus, the longer you hold an account, the more positive it is for your score, and since student loan terms are often 10 or more years in length, your score will continue to benefit as you meet your loan payment obligations.
Student Loan Management
If you owe student loans guaranteed by the federal government, you can minimize the risk of damage to your credit by taking advantage of the various repayment options available to you. If your monthly loan payments are more than you can handle, you can choose a different payment plan that allows you to spread your payments out over a longer time period. If you are unemployed or facing a financial crisis, you can also request a deferment or forbearance on your payments while you regroup. Do this before you miss a payment, and you will preserve your credit.
0 comments:
Post a Comment