Credit Scores

How Student Loans Affect Your Credit Scores

Student loan debt is becoming increasingly common for most graduates in America. The Student Loan Report shows that nearly 70% of all college students have taken student loans with the average borrower in $27,975 worth of debt. While paying back such loans is undoubtedly frustrating, there is a silver lining: paying loan installments on time can improve your credit score.

In this article, we go over some of the ways student loans affects your credit score – for better or for worse.

How Student Loans Affect Credit

Student loans are considered installment loans and are repaid with fixed payments over a period of time. Auto loans and home mortgages also fall under this category. Paying the minimum requirements each month reflects positively on your credit history. This allows you to access larger credit lines that make it possible to achieve life goals such as obtaining a car loan or buying a house.

Similar to other loans, failure to pay on time negatively impacts your credit history.

The Positives

Out of all the factors that determine credit rating, payment history makes up 35% of the total score. However, there are a few things that make student loan repayment unique from other types of loans. Things such as auto or renters insurance payments are not reported to the major credit bureaus until you stop their payments.

Student loans payments are an exception. They are routinely reported and consistently impact your credit score. This feature makes it ideal for young credit card holders that have yet to acquire an auto loan to submit student loan payments on time. It helps to build credit history early on and projects a positive financial image in the long-run.

Another factor that reflects positively on your credit history is the credit mix. Credit mix refers to the diversity of credit you have and student loans add to that mix. The more diverse your loans, the greater your credit mix.

The Negatives

As mentioned earlier, payment history accounts for 35% of the total score which means that the pros are just as impactful as the cons. Failure to pay student loans on time can really hurt your credit history and the effects can last for up to 7 years on your report. Services are quick to report delinquency even if your installment falls short by 30 days, making it dangerous to even skip a month.

Defaulting on the loans is far worse. Much like late payments, they also remain for 7 years on your report even if you manage to pay them off later. Defaulting makes it difficult for creditors to trust you with their money, making loans harder to obtain in the future.

As long as your student loan payments are on track, there’s little to worry about. However, circumstances can often cause people to end up with bad credit scores. TheCreditDocs provide credit repair services in San Bernardino to credit card holders looking to improve their credit scores. Contact them today for more information.

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