Should You Be Concerned About Your Credit If You Have Student Loans?
Posted by: Guest Author / Category: LoanThe common mantra, “You get what you pay for” has lead many college students down the road to high levels of debt from student loans that will hopefully provide a brighter financial future for them. However, upon graduation, these students often find that they have such a high level of debt and an entry-level job that does not provide for paying the loans off anytime in the near future. The worry for many of these new graduates now focuses on their credit. After all, a high level of debt has never been great for one’s credit score.
Many people with student loans find it more difficult to get access to credit today, leading many to believe that their credit is suffering. While their credit may not be horrible, there are lenders or creditors out there who might be skeptical about giving them credit or a loan because they already have a high level of debt and their salary does not indicate the ability to pay off their liabilities anytime in the near future. Also, if your credit rating was poor in the past, student loans will only hamper it in the future.
Usually, for most college graduates, the debt they have accumulated with student loans is the largest sum they have ever had. For this reason, their credit is affected. Many times, we think our credit is fine if we pay our liabilities, however, your credit rating also considers your total level of debt. Therefore, it is not surprising that college students who graduate with high debt will see a drop in their credit score.
One of the best ways to maintain a decent credit rating is to plan for dealing with the student loans now. Since your credit score evaluates your level or debt and payment history, a successful payment plan will not only lower your debt level, but it will also help establish consistent payment habits. In doing so, you will find that you can help your credit score even though you may feel that it initially was lowered upon graduation.
Also, for those who have student loans and have not yet graduated, one of the best tips for helping your credit and the payment process is to start paying on the interest now. The government usually allows you to wait until after graduation to begin making payments, however it can be surprising how much the loans add up to over time. If you can pay some while in school, do so; and, you will be avoiding costly interest and a larger sum to be paid back upon graduation.
When you do graduate, most student loans allow for a grace period - time to find a job before you need to begin paying of your loans. Usually the grace period is somewhere between 6 and 12 months, however there is a good chance that you may find employment before then. Therefore, use that time to set aside money that you can use towards your first payment to the student loan. This way, your first payment is a decent amount, and it will start you out on the right foot financially.
Just like most loans, student loans usually have a timeline that requires your payment in full - usually 10 years. Your monthly payment will be determined on this timeline, however, if you can afford to, it would be smart to pay more than the minimum payment. When you do this, you will obviously pay it off sooner, and you will also avoid paying more interest than you need to.
Just like any financial liability, it is definitely not wise to skip payments for your student loan, because it will affect your credit. Instead, a good idea is to contact your lender and try to negotiate a payment plan that works better for you. Most lenders are surprisingly nice to work with; and, if you contact them, they will most likely be willing to help you find a solution to your troubles rather then letting your skip payments. Talk with them if you find yourself overwhelmed, and demonstrate your willingness to act in good faith.
Also, make sure that you never default on your loan because it will harm your credit. A default on your student loan will remain on your credit record for approximately 7 years, it could cause legal issues, and your wages could be garnished. Therefore, do not neglect your loan.
While student loans are necessary for many, when it comes to your credit, they can be risky. Be careful and responsible when it comes to paying them back. You will be glad you did.
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Tags: credit report, credit score, Loan, Personal Finance, student loans