Student loans can have a positive or negative impact on credit
Yes, your student loans appear on your credit report and are credited to your credit rating, just like all other loans. This means that they can have a positive effect on your credit rating if you make payments immediately, or a negative effect if you miss payments or go to the default.
Student loan debt
If you take out a reasonable amount of student loan debt and make up for it after graduation, your credit report will reflect that you are a conscientious lender who is good at financial management.
It might make you look attractive when you need to borrow more money in the future.
On the other hand, not paying your student loans on time, allowing your student loans to fall into collections or not paying student loans, will also go to your credit report and will definitely have an adverse effect on your credit score.
Prevent student loans from negatively affecting credit
Needless to say, it’s crucial to keep your student loan in good shape, as it can come back to haunt you when you try to buy your next car, your first home, or even when applying for some jobs. Here are some other points to keep in mind how student loans can affect your credit:
- Buying for private student loans can affect your credit. Applying for federal student loans does not appear on your credit report until you begin credit. But if you still need extra funds outside of federal student loans to pay for your college expenses, you may decide to buy private student loans. These apps are likely to appear on your credit and look bad if it looks like you are applying for too many lenders. Manage this by first completing your research, before providing any specific applications that are likely to be reported.
- Credits appear on your credit report even when they are deferred. For the record, your student loans will typically be displayed on your credit report even while you are still in college and still technically in deferral. However, this usually does not have a dramatic effect on your ability to obtain non-educational loans because many lenders are more interested in your current monthly payment obligations, which are zero while you are still in school, as opposed to your actual loans.
Dealing with Student Loans After College
It is not uncommon for you to have trouble paying off your loans when you are out of school and entering the workforce (or trying to do so). Here are some tactics that can help you deal with high student balances:
- Delays can help if you are unable to make a student loan payment. Review federal student loan payment options carefully as they may change to reflect your earning power after graduation. Depending on your personal situation, you may be entitled to some kind of temporary delay or tolerance to lighten the load. Deferring a loan will allow you to suspend payments for a period of time or temporarily reduce payments. Postponing or withholding does not hurt your credit score, as it is considered “paid as agreed”. You may also want to use one of the income-based student loan repayment options that are more sensitive to the amount of money you have available.
- Credit consolidation can help. If you have taken out both federal and private student loans during your college career, this can be confusing for you and may look messy on your credit report. You may also be more able to miss a payment, simply because different loans have different payment dates and payment amounts. It may be helpful to use a direct consolidation loan for your federal student loans so you only have one monthly payment.
- Ignoring your credits does not improve your situation. If you have experience with financial difficulties, trying to deal with student loans feels like another burden on your shoulders. It looks like it would be easier to crawl into a hole and hide, but that really just ends up making things worse. Late payments start appearing on your credit report and limit your ability to make alternative payment methods. If you are fully in charge of your federal student loans, this will leave a whole host of negative actions and make your life even more miserable. A student loan default can remain on your credit report for seven years. The government can pay your salary and even withhold any federal income tax you may have been counting on to get out of this situation.