This is a question over which many young adults ponder when they are starting to take out student loans for the first time. The economic recession has caused many young people to rethink their college dreams, but not all of them have been affected as some have suffered much worse outcomes than others. If you are one of these individuals, there is good news. There are simple steps that you can follow that will help you increase your score and get accepted for the loan program you are applying for.
The most important part of increasing your credit score is to maintain a good credit history. This means that you need to be responsible with your payments, paying your bills on time, and paying off any debts that may exist. When you do this, you will see an increase in your credit score as lenders view you as less of a risk. You should always check with the lending institution regarding their policies when it comes to approving or denying you.
When you are finished with college, your credit accounts may show some activity, but it does not mean that you have improved your situation. For this reason, you need to continue to stay on top of your credit scores. It is never too late to start, as many students wait until their senior year to begin improving their scores. How Student Loans Affect Your Credit Score varies depending on how bad the situation was for each student. Some students had a major financial disaster, while others were barely scraping by.
If you were one of the students who experienced major financial struggles, how student loans affect your credit score can be dramatic. Many times, these loans were not fully paid back, which means some balances haven’t been cleared yet. Once the balances are finally cleared, your credit report will reflect that you cleared your debt. This could greatly improve your score, though this is not always the case.
If you were able to make payments on time and in full during your grace period, your credit report should reflect that. However, if you fell behind on your payments, or fell into default, your credit report may not reflect that. In these cases, your credit will be negatively affected until you can prove that you have made all of your student loan payments on time. The reporting agencies take your word for it if you are unable to show proof of these payments. Even then, it may take several months before the effect is noticeable.
If you took out a co-signer loan while attending college and had trouble paying the money back, you could be counted as a high-risk borrower. If lenders discovered that you were a co-signer for the student loan, they could report your late payments or defaults to the credit bureaus as being due to your actions. This could lower your credit score. If your credit score was already low to start with, taking out another student loan could cause your score to further drop.
If you received a deferment, forbearance, or another type of deferment while in school, the lender may report this to the credit bureaus as a debt which you are now past due. This is because you have not been able to follow through with payments as agreed upon with the lending institution. It is important to note, however, that these types of defaults will remain on your credit report for up to seven years. Any extension to your loan during this time will also show up on your credit report. For most people, this type of loan is a better option than applying for a consolidation loan or waiting to apply for credit on your own.
If you have multiple loans and several of them are in deferment status or default, your credit report will indicate this. The credit bureau will treat all the defaulted loans as one. This will make it appear that you have less credit available to you. The result is that if you need a loan with a higher credit limit, you may be declined. It is important to note that this will not affect your primary residence. Most lenders are used to seeing this type of situation and do not provide any special benefits to those with multiple defaults on their credit reports.