Student loan debt can be a stressful enough prospect without getting credit involved. But is your credit and how your student loan debt impacts it something you need to worry about as you work on funding or paying off your college education? Read here to learn more.
How Can Student Loan Debt Impact Your Credit?
Given the fact that federal student loans often don’t require a credit check, it could be easy to assume that they shouldn’t impact your credit — and they might not while the loans are in deferment. But once your grace period is over and payments come due, your student loans should be reported the same way as any other open installment loan.
That doesn’t necessarily mean the impact student loans have on your credit is bad. In fact, how they affect your credit will mostly come down to how you manage your loans. Here are a few examples to consider:
1. Student Loans Are Reflected in Your Total Amount Owed
This might be the scariest thing about the relationship between your student loans and your credit: the total debt amount. It’s true that your total debt is a part of your credit scores, but as time goes on and your payments chip away at your balance, this aspect of your credit can improve.
2. Student Loans Are Reflected in Your Payment History
Payment history is a highly influential factor both in FICO® and VantageScore® credit scores. That can be good news because it means making your student loan payments in full and on time every month can help you do well in this category. This is a straightforward win for your credit, as long as you understand that missed or late payments can be just as detrimental as on-time payments are helpful.
If you have federal student loans and are facing difficulty making your payments, you can see if you qualify for one of these income-driven repayment plans to help. You could also try deferment or forbearance. If you’re in this situation with private student loans, contact your lender to find out what kind of options they offer to help.
3. Student Loans Are Reflected in Your Type of Debt
Credit mix is not a large factor in both FICO® and VantageScore® credit scores, but it is a factor nonetheless. Lenders like to know how you’ll handle more than one type of debt, so showing more than one type of credit can help. If you have student loans and a credit card, for example, then you’re already exhibiting a certain degree of credit mix.
4. Student Loans Are Included in Your Credit History
Length of credit history is another factor in your credit scores — and one that your student loans can help with. The key behind this factor is simply to show that you have a credit history. So, even if you have student loans and no other type of credit, then you could show a credit history with those alone.
5. Co-Signed Student Loans May Affect Your Co-Signer’s Credit
All of these factors are ways that student loans can affect your credit. If someone, like a parent, co-signs on your student loans, then all of these factors can affect their credit as well. That’s why, if you get help from a co-signer, it’s that much more important to stay current on your loans. If you default, it will almost certainly hurt your credit and your co-signer’s credit, and your co-signer could become responsible for your missed payments. Therefore, a co-signing relationship is not one to be entered into lightly.
Help Ensure the Impact of Student Loans Is a Good One
It’s not easy starting out in your adult life with a pile of debt, but the good news is that student loans don’t have to be a detriment to your credit. If you remain current on your loans — and take immediate action for help if you think you won’t be able to do so — then you can work on making sure their impact on your credit is a positive one.
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