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If you make your payments on time, they can actually boost your credit score.
Heres what you’re gonna wanna know.
How Credit Scores Work
Your credit score measures your creditworthiness.
Its a three-digit number ranging from 350 to 850 determined by Fair Isaac Corp., known asFICO.
Most financial institutions use the FICO score.
Lenders use credit scores to learn how likely you will pay your loan on.
A high FICO score makes you seem less risky to lenders.
This is also known as your creditworthiness.
Your credit score is based on a review of your credit history.
It includes your:
The three major credit bureaus in the United States areEquifax,ExperianandTransUnion.
Each agency may calculate your credit score differently.
How Does a Student Loan Affect Your Credit Score?
How you handle your student loan determines positive and negative impacts on your credit score.
If you dont, it will hurt your score.
However, unlike federal loans, most financial institutions require a credit check for private loans.
This inquiry can temporarily dip your credit score.
Here are seven ways to manage your student loans to protect your credit:
1.
Set up automatic payments or calendar reminders to ensure you make your payments on time.
Contact your loan servicer to discuss eligibility and enrollment.
Pay More Than the Minimum
Paying more than the minimum will help reduce your principal balance faster.
you’re free to also lower the interest you pay over time.
Avoid Default
If you default on your student loan, you risk damaging your credit permanently.
Keep Track of Loan Servicer Changes
Loans can be transferred to a new company.
Missing a payment because you paid the wrong servicer can hurt your credit.
Watch for any correspondence from your loan servicer about changes.
What If You Miss Payments?
This means you would pay even more money on interest.
If the loan is sent to collections, you may be charged extra fees.
Eventually, you may face wage garnishment.
How Long Do Student Loans Stay on Your Credit Report?
Whether you default or pay off your loan, it will stay on your credit report for seven years.
Final Take
Student loans play a significant role in shaping your credit score.
The way you manage these loans can have positive and negative effects on your credit.
On-time payments are crucial, and default has severe consequences.
FAQ
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your Financial Advisor options today for Free!
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