How to Increase a Credit Score When I Have Defaulted on Student Loans

Lenders report student loans as being in default when you fall four to 12 months behind on student loan payments depending on the lender. Having a default appear on your credit report significantly lowers your score and makes it difficult to get approved for loans and credit cards. After your loan goes into default, take action to remedy the situation and repair your credit score. The best course of action depends on whether you had a federal student loan, such as a Stafford, Perkins or PLUS Loan, or a private student loan from a bank or credit union.

Instructions

Federal Student Loan

1

Call 800-433-3243 to find out what loan servicing agency is in charge of collecting on your defaulted federal student loan.

2

Call the loan servicing agency and tell the customer service representative that you would like to rehabilitate your defaulted federal student loan. In rehabilitation, you start making monthly payments again to remove the default status from your credit report.

3

Provide the required financial information to determine an affordable and reasonable monthly payment amount.

4

Make nine monthly payments, each of the agreed amount and within 20 days of the due date. The nine payments must all fall within a 10-month time period. After you satisfy this requirement, the loan will go back into good standing and the default will no longer appear on your credit report. This will help improve your credit score.

Private Student Loan

5

Call your lender and tell the representative that you would like to start making payments on the loan again. If the loan has not gone to a collection agency yet, you might be able to get back on track before the default gets listed on your credit report. Set up a payment plan that will keep the lender from sending the loan to a collection agency and stick to the plan.

6

Contact private student lenders and ask about getting a consolidation loan for your defaulted loan that has already been sent to a collection agency. Paying a lender rather than a collection agency will allow you to put more positive credit history on your report and boost your score sooner.

7

Make regular payments to the collection agency if you cannot get a consolidation loan. This will not help your credit score much, but an account that is paid in full generally looks better than one that is still past-due.

8

Obtain and make regular payments on other loans or lines of credit to put positive payment history on your credit report. This will help compensate for the negative payment history that is due to the defaulted student loan.