By John Brown
Student loans can be a significant burden on your shoulders. Not only do you have to worry about paying off all that money, but you also have to worry about how that debt will affect your credit score.
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Whether you already have student loans or are looking to open one now and are curious how it will affect your credit score, you’ve come to the right place. This article will also discuss steps to ensure your credit score remains as high as possible.
How Do Student Loans Affect Your Credit Score?
In most cases, 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 affects your credit score differently. Specifically, student loans are part of the “credit mix” criteria on your credit report, affecting about 10% of your credit score calculation.
With an installment loan, the loan amount and your payment history are reported to the credit agencies. On-time payments improve your credit score, while late or missed payments hurt your credit score. The higher the loan, the more it affects your score.
What can you do to improve your credit score?
If you’re concerned about how your student loan is affecting your credit score, there are a few things you can do to improve your score. First, make sure you make all your payments on time. This is the single most important factor in your credit score, so it’s important to keep track of your payments. If you can, pay more than the minimum payment each month. This will help you pay off your loans faster and improve your loan utilization rate.
Another thing you can do is sign up for automatic payments. This way you don’t have to worry about forgetting to make a payment. Many lenders will also give you a small discount if you sign up for automatic payments, which can be economical across the board.
Finally, remember to monitor your credit utilization rate regularly. If it gets too high, pay off your debt as soon as possible.
Does Paying Student Loans Build Credit?
Yes, paying student loans builds credit. As mentioned earlier, making payments on time improves your credit score, while late or missed payments 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 best way to pay off your student debt depends on your situation. If you have the cash, it’s wise to make larger monthly payments to pay off your debt faster and also improve your loan utilization rate.
If you’re having trouble paying some of your loans, you can always request changes to your payment schedule or sign up for a deferral to temporarily suspend your payments. It’s useful to know that a change in credit terms won’t hurt your credit as long as you handle your payments well.
The final result
Whether you are getting a student loan for the first time or are struggling to understand how your loan will affect your credit score, we hope this article has provided you with some clarity. If you follow recommended practices and monitor your credit more closely, things will become a little easier for you. There are several other ways to keep an eye on your credit, but the steps mentioned in this article are a good place to start.
John is a financial analyst, but also a man with other interests. He enjoys writing about money and giving financial advice, but can also delve into relationships, sports, gaming, and other topics. Lives in New York with his wife and a cat.