Students Loans & Your Credit Score
Written by Brooke Bernstein
While you typically take out student loans in your early twenties, the debt can stay with you for years in adulthood. Some adults are still paying off their student loans while also thinking about how to pay for their own kids’ education. Have you ever wondered if this student loan debt can affect your credit score? As you may know, your credit score affects many factors in your life such as an application for a home mortgage or buying a car. It is crucial to know whether or not student loans affect your credit score. The answer…. Yes. Student loans do impact your credit and in fact, they affect your credit in more ways than you may imagine
Student loans are similar to home mortgages and auto loans as they are all considered installment loans and all installment loans are treated the same way when calculating your FICO® credit score regardless of whether it’s for your house, car or unfortunately, your education. Installment loans do not necessarily hurt your credit score though. Having credit card debt is far worse than student loan debt and according to FICO, “7% of consumers with more than $50,000 in student loan debt still had ‘excellent’ scores in the 800s.”
What will really affect your credit is how you pay off your student loans. Just like credit cards, paying on time is important. Make your payments on time and in full and remember the higher your credit score the more points you stand to lose for a delinquency. It is also important to not let your loans go into default or collection. Private Loans can appear on your credit report after thirty days but federal loans, those late payments are reported to the three major credit bureaus after 90 days of delinquency.
Ok so we’ve talked about how student loans can hurt your credit score BUT, there’s good news! Student loans can help too. Part of your FICO score includes your credit mix. Having a mix of revolving loans as well as installment loans, like student loans, can be good. Furthermore, the length of your credit history makes up 15% of your score. Student loans are notorious for having long repayment periods and while this may feel cumbersome, this can build up your credit history over time.
Also, if you noticed a credit criterion is not required when applying for student loans. The way you eliminate student loan debt is the process of funneling money. You can transfer small balances of loan debt to credit cards with Zero percent interest. Ensure the utilization is between 2-9 % for resilience purposes. The formula to determine credit utilization is (The amount spent/The Credit Limit).
This process will stop the daily interest accruing rates from the IRS. The reason student loan debt is uncontrollable is the formula: I= PRT. I=Interest, P=Principal R=Rate T=Time.
Principal is the amount borrowed. Rate= (Given). Time- Which is never disclosed with Student Loans.
If you were to borrow 30k if you and your payments are 300 a month, your student loan debt will never end due to the daily interest. If you want to find out more about eliminating student loan debt, schedule an appointment at www.DALSCREDIT.SOLUTIONS.