As long as they’re paid on time, student loans can bolster credit scores. They also add to the average age of your credit, which benefits your score.
And since student loans are installment debt, having them on your credit report shows that you can manage large amounts of debt over a period of time. Lenders like to see a mix of credit types in your report, too.
Paying Off Your Student Loans
Student loans are a necessity for many students, but it’s important to be mindful of how they impact your credit. Student loan payments are reported to the credit bureaus, and when you make them on time, your credit score can improve. Additionally, student loan debt can contribute to your overall account mix and average account age, which are both factors in your VantageScore® or FICO(r) credit scores.
If you’re able to, pay more than the minimum amount due each month. This will help lower the total interest you pay and will allow you to pay off your student loans much sooner. You can also consider consolidating your student loans or using a repayment strategy such as the debt avalanche method, which involves paying off the highest-interest rate loans first.
Another option is to pay your student loans with a rewards credit card. This can offer a variety of benefits, including earning reward points that can be used to lower your balance or pay off the interest you’re accruing.
If you’re having trouble keeping up with your student loan payments, speak to your loan servicer right away. They may be able to provide options for you to manage your payments, such as deferment or forgiveness programs. However, you should never stop making payments or default on your student loans. Doing so can have serious consequences and will make it harder to qualify for future loans in the event of financial hardship. If you have a cosigner on your student loans, be aware that any missed or late payments will negatively affect both the borrower and the cosigner’s credit score. A default on a student loan can be reported to the credit bureaus for up to seven years.
Having a Student Loan
If you’re applying for a student loan, your credit score will play an important role in whether or not you get approved and under what terms. However, it’s not the only factor that lenders consider. You’ll also need to meet the lender’s minimum credit score requirements, which will vary from lender to lender.
Having a student loan can help improve your credit score if you make all your payments on time. This is because payment history accounts for about 35% of your credit score, according to Experian. In addition, having a student loan on your credit report can add to your average account age and diversify your credit mix, which can also help boost your score. However, if you miss your student loan payments, it can ding your credit score and may make it difficult for you to obtain future loans or other forms of credit.
The most common type of student loan is a Direct Subsidized Loan, which is based on financial need and is not subject to credit checks. However, if you’re interested in taking out private student loans, it will be much harder to qualify without a good credit score. In fact, most lenders have a minimum credit score requirement of around 649, and many require borrowers to have a cosigner who will be responsible for the debt in the event you are unable to pay your student loan on time.
Recruiting a parent to cosign a private student loan is an option for borrowers with bad credit. The lender will consider your parent’s credit history in addition to your own, which can boost your chances of getting a loan and potentially lower your interest rate. Keep in mind, though, that borrowing with a cosigner can be risky and may cause your credit score to take a hit. Generally, you should exhaust all federal student loan options before turning to private alternatives.