What You Need To Know About Credit Scores And Student Loans

Once you’ve finished school and the grace period has passed, student loans affect credit scores like any other significant debt will. That means that your repayment – or not – can influence your credit and your quality of life in many ways, either as a benefit or a hindrance.

Handle Your Business

Really, that’s the best way to ensure that your student loan continues to be a positive force – handling your business. For most, there is a gap of up to 9 months after graduation before the obligation of student loan repayment begins. Once that kicks in, you have an opportunity to make further productive use of your student loan, beyond getting your degree, making it a positive force in your credit history, demonstrating that not only have you entered the grown-up professional world with ease, but are also moving into the fiscal responsibility realm with equal grace.

Using your loan to create a positive credit history is as simple as making your payments on time, and making sure that that responsible behavior is reported to the credit reporting agencies. You do that by checking your credit report frequently. You can count on being able to get a free credit report once a year, with just a little effort on your part. If you discover that there are errors on your credit report, you’ll need to contact the specific reporting agency and make use of your legally granted right to have those errors investigated and corrected, if warranted. If you find that your student loan payments have not been included in your credit report, you can ask your lender to make sure to report the information.

Potential Problems

Of course, all is not wine and roses when you are carrying debt as large as some student loans are, which is a good reason to borrow just what you need and no more. There are some credit issues that can arise simply from having such a large and current debt, making it even a greater matter of importance to make repayment a priority.

In addition to such things as your employment status, your income and your debt repayment history, potential creditors also look at what is called your debt-to-income ratio. That refers to how much you make and how much you owe. If you have a large debt, particularly as compared to your income, then a lender is more likely to determine that you may not be able to afford to take on more debt and successfuly maintain the repayment obligations associated with it.

The size of your monthly payments can affect this, as the lowest of payments can leave the principal of the loan untouched, and can even increase the amount owed, if it is not large enough to match the interest. This generally happens if a forbearance, a temporary reduction or suspension of payments, is applied for and granted. When a potential lender sees that, they see that not only do you have a large income-to-debt ratio, but also that you are not successfully bringing the debt down in any meaningful way.

Thus, when carrying a student loan obligation, it is best to have as few credit accounts open as possible, having one or two credit cards for an emergency. If you can get by with an affordable, decent used vehicle that you can pay for outright, avoid the car loan for now, and keep that income-to-debt as low as possible, while you work on bringing down the principal.

What To Do If You’re Struggling Now

The first thing to do if you are struggling now is to not get discouraged. You do have options, and you can bring this matter under control. The next thing to do is act. Doing nothing to resolve the problem except for to hope it goes away, or to ignore it until your financial situation improves, simply makes matters worse. Knowledge and communication are the keys to taking command of the situation.

Obviously, the best thing to do is to pay student loans off as quickly as possible, but – in the real world – that is not always as possible as we’d like it to be. If your employment situation doesn’t permit you to follow that path quite yet, your next best option is to see to it that you don’t let the situation become worse.

One way is to request a temporary repayment plan that allows you to pay the interest right now, so that it does not accrue and add even more to your total debt. This is a better option than a forbearance, which should be avoided to the highest degree possible, as your debt will grow if you use that option. In fact, there are a variety of payment options that you could discuss with your lender, including a payment schedule that starts with smaller payments that keep the interest paid, and gradually progress to larger payments that address the principal. There are payment schedules that are connected to your income, sort of like a sliding scale fee. There are extension plans that increase the length of time that you have to pay the loan off, while decreasing the monthly payments.

If you’re close to default, or are already in default, don’t let it pass. You’ll need to address the matter. There are a variety of options that may be helpful to you. Among these is a loan rehabilitation program, something you can discuss the availability of with your lender.

For the most part, if you have the knowledge of what the possibilities are and the confidence to ask for them, lenders are willing to negotiate. After all, for a lender, it is better to get something than nothing, and your willingness to communicate indicates at least some intention on your behalf to resolve the matter.

Your student loan debt presents you with an opportunity. With proper knowledge and confidence, you can make the most of this opportunity, and establish yourself firmly in the realm of the responsible, moving steadily towards your lifestyle goals.