Will Student Loans Affect My Credit Score?

Introduction

The life of a student is full of pressures and stress. Adding to it is the price the higher education comes at. This is the primary reason for students to take up loans when they set off to college. This eases the burden on the parents to save for their kids in the college fund and the student once graduated after college can repay the debt slowly through timely installments. However the effects of a student’s loan on your credit score is, to put it mildly, devastating. Student loans credit score effects should be clearly understood by all potential loan takers as it lowers your credit score severely and you end up paying more in interest and also effects future loans, if you are planning to take any.

History

The amount of interest one pays is directly linked to his/her credit score. If your credit score is above 750, the interest you pay is much lesser than a credit score of let’s say 650. Having a higher credit score means you pay more money towards the repayment of installment and get rid of the debt quicker than a lower credit score loan. Also, the larger the loan one takes, the lower the credit score gets. However, in cases of a student loans credit scores triplicate. That is, if you have a student loan debt of $10,000, it would show up as $30,000 on your credit report. Thus it will not only greatly lower your credit score, but also adversely affect the interest you end up paying.

There are a few other factors which influence the student loans credit score. If you were considering repaying your debt sooner, it might lower the credit rating by 10-15 points. It might sound a bit harsh, but lenders lose out on the interest if the debt is repaid sooner than the designated time and thus a penalty in terms of credit score is imposed. Any ways, there is no wisdom in paying the student loan sooner. Another effect on the student loans credit score is that of the duration of repayment. The periods of more than 10 years in repayment lower the credit score to a great effect.

Features

So, is there no way to improve upon the credit score if you have taken a student’s loan? Well there are a few things one should keep in mind. Consolidation of your loans is a good way to increase your credit score. It means that your student’s loan is combined with other loans, if you have any, to make a single loan, and thus increasing your credit score. The student loans credit score can also be improved by refinancing your loan from the bank. This way the interest rates you pay are lowered and the overall credit score is improved. One thing that you must keep in mind is to ensure timely repayment of every installment. The student loans credit is subprime mortgage and defaulting on it will lower your credit score severely. However a timely repayment of the loan reflects very well on the credit report and helps in any future loans that you might be considering to take.

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