How Student Loans Affect Your Credit
Do student loans affect your credit?
If you are among the 44 million Americans with student loan debt or you’re thinking of obtaining a loan to pay for your college, knowing just how student loans affect credit can help you protect your credit in the future.
Debt aside, there is an upside to acquiring a student loan beyond the clear of compensating for college. Student loans can be helpful for young consumers credit score. Student loans help consumers qualify for other lines of credit later on. On the flip side, not paying off your student loans or making late student loan payments can severely damage your credit.
Credit scores are calculated by the credit bureaus using certain factors from your credit report, including:
• Payment history
• Debt levels
• The age of credit
• Debt diversity
Having a a student loan involves the age of your credit and debt diversity And responsibly managing the loan affects your payment history.
Having student loans lets you build a credit age, if you don’t have one already or have one that is new. Credit history helps those who can’t qualify for revolving credit—credit cards and related types of credit. If you do have a credit card or cards, a student loan improves your account mix since it’s an installment loan.
When you take out an installment loan, like a student loan , you receive a lump sum of money. Then, you pay that sum back over time with fixed regular payments. That installment loan doesn’t actually affect anything but your account mix. You might assume it affects the amount of your revolving credit limits you’re presently using. But an installment loan isn’t revolving credit, so it doesn’t affect debt usage.
A student loan can build up not only your account mix but also your payment history. Payment history is the most essential aspect of your credit scores. It makes up 35% of your scores. Late payments on any obligation hurt credit scores, but making your monthly payments on time is a plus on your payment history.
Ironically, your loan balance has slight impact on your credit scores. Your scores actually come down to your payment history, which is why it’s important to take on a manageable debt amount and, if you’re unfit to repay your loan on time, pick up any available student loan income driven repayment plan.
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Information obtained through the site(s) are for advertising and/or educational purposes only. Nothing on this site constitutes official qualification or guarantee of the result. © Copyright Student Debt Modifications 2010-2020 Disclaimer: Student Debt Modifications is a private, student loan resolution services company and not affiliated with the U.S. Department of Education (DOE) or any other government agency. We help prepare and process the application for student loan consolidation and repayment programs offered by the DOE. You can apply for loan consolidation or other repayment programs without paid assistance at no cost through the Department of Education (DOE) at www.ed.gov We are not a law firm nor are such representations being made.