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Do Student Loans Affect Your Credit Score?

Do Student Loans Affect Your Credit Score?
May 1, 2019 pretsrapides

Do Student Loans Affect Your Credit Score?

cash loan montrealWhether you are still buried with over $100,000 of student loan or in the final stages of repayment, you are most likely thinking about your financial future. Although you will, hopefully, pay off your student loan in good time and say goodbye to it, you may still want to qualify for a credit card, cash loan Montreal, or any other financial product.

By now, you understand the fact that money lenders rely on your credit score to establish your creditworthiness. Interest rates also depend on your score. A bad credit score makes you a less attractive borrower, and if you qualify for any loan, lenders will most likely penalize you with higher interest rates.

For now, you may be asking yourself: Do student loans affect my credit score? The simple answer is; yes they do.

Student Loans and Credit Score

Student loans affect your credit score the same way as any other debt on your credit report. Critical account information such as the total amount of loan, your repayment history, and monthly payment amount play a vital role when it comes to determining your credit score.

Even if your student loan is still in deferment and you have not started making any payments, potential lenders can still consider the total amount that you owe when determining your creditworthiness.

You need to keep in mind that student loans are considered as an installment loan just like any other cash loan Montreal debt that you may owe. An installment loan usually has a starting balance that is repaid over a specified period with a fixed number of repayments. Auto loans and mortgages fall in this category too.

While calculating your credit score, all installment loans are treated the same way. Student loans don’t receive any special attention. Furthermore, it doesn’t matter whether your student loans are private or federal. Both are treated the same.

Missing a Student Loan Payment Will Negatively Impact Your Score

Payment history is the most crucial factor when it comes to calculating your credit score. When you miss a payment, the dent remains on your credit report for up to seven years. Student loan companies usually report a separate account for each enrollment period that you were in school representing each semester.

For instance, if you attended college for eight years, each semester you get a new loan. This means that you will end up seeing eight small loans on your credit report.  Therefore, missing just one monthly payment on your student loan can result in multiple dents appearing on your credit report.

What Should You Do If You Think You Will Miss a Payment?

If you are cash strapped and feel like you may miss your monthly student loan payment, make sure that you contact the lender and explain your situation. Ensure that you do so before your monthly payment becomes due.

Many student loan companies out there are willing to discuss options that will help you get back on track and avoid defaulting on your student loans. Keep in mind that paying your student loan on time can help you improve your credit score as well.