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If you have a student loan in your name, you can find it on your credit report under Installment Loans.
Similar to a car loan or a mortgage, student loans are a type of loan that allows borrowers to repay a limited amount of money in a fixed number of monthly “installments” over a period of time.
Since student loans appear on your credit report, they are also included in your credit score. Here’s what you need to know.
This is how student loans will show up on your credit report
Student loans appear on your credit report in two ways.
First, when you apply for a student loan and the lender does a credit check, it leads to one hard request about your credit report (if done in the last two years). Whenever you apply for a credit card or other type of loan, the lender or credit card issuer will pull your credit report from one of the three major credit reporting agencies (Experian, Equifax, or TransUnion), also known as the hard query (or “hard pull”). A tough query can actually reduce your credit score by a few points regardless of whether you are approved or denied for the new loan.
Why you should shop around before applying for a personal student loan
If you’re looking to take out a student loan from a private lender (or want to refinance your federal loan), pre-qualifying will help you see what rate you would likely be approved for. Before you actually apply and get a hard query about your credit report, make use of the lenders’ prequalification tools. The lender Sofi, for example, offers fixed rates as low as 2.99% APR (with Autopay) and has a Find My Rate button on its website. After entering your details (this is known as a “soft pull”) you will receive a price offer that you can use to decide whether you want to submit an actual loan application (which can lead to a low credit rating).
Second, the actual student loan will appear on your credit report under “Installment Loans” once you are approved and take out the loan. However, even if your student loans appear on your credit report, your actual loan balance doesn’t matter as much as your payments on that loan. Lenders want to ensure that borrowers pay their loans on time as long as they are actively paying back.
If you default on payments or default on your student loan, the loan showing up on your credit report can be detrimental. “The negative account information will likely appear on your credit record for seven years from the original date the account was first reported overdue.” Bruce McClary, a spokesman for the National Foundation for Credit Advice (NFCC), CNBC Select announced.
How Student Loans Affect Your Score On Your Credit Report
Student loans on your credit report can be good or bad for your credit score.
Since student loans are a kind of installment loan, the inclusion in your credit report contributes to your “Credit Mix “which makes up 10% of your score calculation. This is good for your credit score as it diversifies the type of credit products you have and shows that you can manage different types of debt for carrying one risk Large installment loans, such as significant student debt. The continuous payments can make saving difficult, and the heavy debt burden increases yours Debt-Income Ratio (DTI)that may affect your ability to borrow more, e.g. B. a mortgage loan.
How otherwise student loans affect your credit score depends a lot on how you manage your monthly payments. Payment history is the single most important factor in determining your creditworthiness, which makes up 35% of the calculation.
If you make your monthly payments on time, the student loan debt will not necessarily hurt your creditworthiness. On the other hand, if you are late with payments (classified as “defaulting”), late (more than 270 days late with payments), or see your debt being collected, it can cause your credit score to drop .
“Any delinquent account that appears on your credit report can have a noticeable and negative impact on your score,” says McClary.
When exactly your late student loan payments are reported to the credit bureaus differs depending on whether you have federal or personal loans. In general, however, federal student loans are a little more lenient with borrowers.
Federal student loan borrowers will not be reported their overdue or missed payments until they are 90 days overdue. If you missed a payment or the money wasn’t available at the time, it means you have about three months to make up.
Student loan borrowers may run out of time since Private lenders can make their own rules. Since every lender is different, as soon as you think you are missing out on payments, check with your servicer to see what options you have.
Treat your student loan the same as any other loan product and that means making your payments on time every month.
In the current situation amid the pandemic, remember that President Biden extends the payment break and the interest waiver for borrowers of federal student loans until at least October 2021. This deferral of student loans has no impact on your creditworthiness.
Especially for private student loan borrowers, ask your servicer what relief options are available to you, and if you have good credit and stable income, consider the low interest rates and refinance private loans that cost you too much Time.
Note to editors: Opinions, analyzes, reviews or recommendations expressed in this article are solely those of the Select editorial team and have not been reviewed, approved or otherwise endorsed by third parties.