How Student Loans Affect Your Credit Score
The only greatest factor that affects the amount of interest that is applied to your loan is your credit score. If your credit score is over 750, you will pay a lot less interest than if your score is lower than 650. Increasing your credit score by 100 points will result in less interest to be paid which means more money will be used to pay the principle and you will be able to get out of debt more quickly.
To understand more about how this credit score works, I will list down a few points below about one factor that can greatly impact your score — your student loan. Now here are some commonly unknown facts about how your student loan actually affects your credit score:
Student loans in most cases report to your credit report in triplicate
With any type of loan that you owe, you will be shown the maximum credit, the outstanding balance and your payment history. The total amount of outstanding balances of your loan will be taken into consideration by the credit scores. The more you owe, the lower the score.
With student loans, however, it is a little bit more complicated than that. Student loans almost always report to your credit score in triplicate. If you only have $15,000 in student loan debt, your credit score will show as if you owed three times as much, $45,000! This will not only greatly lower your credit score but it will also have a huge impact on the interest that you have to pay.
Most people never realize this. Not even some of the professionals do. They simply do their best to pay everything on time. Unfortunately, because of this complicated credit score computing, they do not get the credit score they deserve. To understand the inner workings of credit score computers, you need to work with special professionals.
Paying off your student loans sooner lowers your credit score
As unfair as it sounds paying off your student loan sooner will lower your credit score down by 10-15 points. Lenders do not like their borrowers paying off their loans earlier as they will lose the interest income that they earn from you.
Although this is not necessarily a bad thing for you to do, paying off your student loans sooner is not better than paying it on schedule. Sadly, there is no credit score rating boost for paying it off sooner.
Student loans with longer repayment periods lower your score
Student loans that takes 10 years or more to pay off will lower your credit score. For example, Sallie Mae gives you 10 years to pay off your loan. Although that is not a bad thing since it is an agreement with you and Sallie Mae and it is a very common period of time for student loans repayment, it will report to the credit score as “too long to pay off a debt”.
Additionally, in the case of student loans from Sallie Mae, your loan could look like and be considered as 7 different loans. As in most cases student loans report to the credit score computing in triplicate, it will look as if you have 21 student loans in your credit score. This will seriously ruin your score.
Student Loan Consolidation increases your credit score
Consolidating your student loan will put all your loans together and is wholly paid up by your consolidation lenders. One single loan will then be assigned to you. With this one single loan only, you are improving your credit score.
Consolidating your student loans will be a great start for you to create a better financial standing and it will help putting back your credit score in the right track. Many efficient and effective lending companies online offer great consolidation program options. Seek help and assistance from your professional loan adviser to fully understand all the benefits you can get from a student loan consolidation program.
But before you go about applying for a student loan consolidation program, make sure you shop around first and compare programs like you would . That way you would have a broader list of options that are available to you.
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17 Responses to “How Student Loans Affect Your Credit Score”
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Borrowing money for college is a big responsibility but college remains a smart investment for obtaining a satisfying career that earns a competitive salary. Good post.
If you ruin your credit score at a young age it can be highly detrimental to the rest of your financial history. Student should begin with student credit cards before they jump into student loans. They are easier to manage and give you the ability to create a solid credit history. When you are ready to go to college you should get a student loan and make repayments whilst still at college.
Living without debt gives you freedom to not worry about your credit score.
I have to agree with Dan, but at the same time, debt can help us build a better future for ourselves than we could have otherwise.
So having the student loans kills your credit score… and paying them off early kills your credit score. This is a bunch of non sense. You say they are all counted three times… why is this? This seems unfair and unlawful.
Student loans are a big scam anyways. I just paid off a bunch of my student loans early because it is like getting 6.8% return, something you will not likely get by putting your money in the bank. If that lowers my credit score they can piss on it for all I care……
I have to agree with Dan. Student loans are a big scam anyways. They are easier to manage and give you the ability to create a solid credit history.
Agreed with all the persons but finally i would like to say that students really need debt free loans for completion of their studies.
So the loan agencies and government should take steps to help them.
regards
rabia
Student need to begin with student credit cards before they jump into student loans. They are easier to manage and give you the ability to create a solid credit history.
I now owe 22,000.00 in student loan that I cosigned for my son’s school – Florida Tech. College. This school is a scam where student loan is concern. My son’s loan is 13,000.00. They said financial aid will help but the total of his degree is 5,000.00 over charged…no financial aid but more in student loan. What a scam. Thank God, I consolidated and is starting to pay this off now…hoping my credit will go back up.
All of this is in regards to private student loans. What about government-subsidized Stafford loans and how they help in building up your credit score, if someone pays them off regularly while still at school? They don’t require any credit checks so it’s a great way for building up credit history if you make regular payments each month. How is that not helping your credit score? What if someone only takes one Stafford loan offered to them the first year and then none the next year – isn’t that better for your credit than taking out loans each year and consolidating them afterwards? While loan consolidation is great, it seems that this article is geared primarily towards people who did not pay off their loans even once during college and have multiple student loans – not to people who are CONSIDERING getting student loans in the first place!
I consolidated student loans about 10 years ago around 20K worth. For years this was reported as ONE loan with ONE payment. Recently my loan was purchased by NELNET (terrible company by the way) and they report it as THREE loans. The result is a net lowering of my FICO by 10 pts. I called Experian and Equifax to complain but they say it’s required by the government if the loans are different “types” like subsidized vs unsubsidized. My score is good, but it is irritating as hell that something completely out of my control lowered my hard-earned score by 10 points… overnight.
My score is good, but it is irritating as hell that something completely out of my control lowered my hard-earned score by 10 points
God bless you for sharing this information useful and interesting and I also will probably anticipate other interesting posts you closer to the inside future.keep.
You have given us some interesting points . This is a wonderful article and surely worth reading.Excellent point here.
While loan consolidation is great, it seems that this article is geared primarily towards people who did not pay off their loans even once during college and have multiple student loans – not to people who are CONSIDERING getting student loans in the first place!
Paying your debts on time improves your credit rating. Do this and you will have a better credit rating to increase your debt.