By John Brown
Student loans can be a heavy burden on your shoulders. Not only do you have to worry about how you’ll pay back all that money, but you also have to worry about how that debt will affect your credit score.
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Whether you have pre-existing student loans or want to open one now and are curious about its effect on your credit score, you’ve come to the right place. This article will also discuss the steps to take to ensure that your credit score remains as high as possible.
How do student loans affect your credit rating?
Most often, student loans show up on your credit report as installment loans. Installment loans are loans that must be repaid in fixed monthly installments while revolving lines of credit are loans that you can repay in full at any time. The type of loan you have will affect your credit score differently. Specifically, student loans are part of the “credit mix” criteria on your credit report, which affects about 10% of your credit score calculation.
If you have an installment loan, the loan amount and your payment history will be reported to the credit bureaus. On-time payments will improve your credit score, while late or missed payments will hurt your credit score. The larger the loan, the more it will affect your score.
What can you do to improve your credit rating?
If you’re worried about how your student loan is affecting your credit score, there are things you can do to improve your score. First, make sure you make all your payments on time. This is the most critical factor in your credit score, so staying on top of your payments is essential. If you can, make more than the minimum payment each month. This will help you repay your loans faster and improve your credit utilization rate.
Another thing you can do is sign up for automatic payments. This way you never have to worry about forgetting to make a payment. Many lenders will also give you a small discount for signing up for automatic payments, which can be economical down the line.
Finally, don’t forget to monitor your credit utilization rate frequently. If it gets too high, pay off your debt as soon as possible.
Does paying student loans create credit?
Yes, paying student loans creates credit. As mentioned, on-time payments will improve your credit score, while late or missed payments will hurt your credit score. Remember, if one of your intentions with your student loans is to build your credit, you need to make sure you make all payments on time.
The most optimal way to pay off your student debt depends on your situation. If you can afford it, it’s wise to make larger monthly payments to help you pay off your debt faster and improve your credit utilization rate.
If you’re having trouble paying some of your loans, you can always request changes to your payment plan or sign up for a deferral to temporarily suspend your payments. It helps to know that changing the terms of your loan won’t hurt your credit as long as you manage your payments well.
Whether it’s your first time getting a student loan or you’re struggling to understand how your loan affects your credit score, we hope this article has provided some clarity. If you follow the recommended practices and monitor your loan more closely, things will be a little easier for you. There are several other ways to track your loan, but the steps mentioned in this article are a good place to start.
Authors biography :
John is a financial analyst but also a man with different interests. He enjoys writing about money and giving financial advice, but he can also dive into relationships, sports, games and other topics. Lives in New York with his wife and a cat.