Are Student Loans Going To Hurt My Credit?

September 2, 2009 | Filed Under Money

In today’s economy, many people are willing to go into debt for a college education, hoping for a brighter financial future. Unfortunately, student loans are not simple, and they often cause college students to graduate with a lot of debt. In most cases, upon graduation, the entry-level job that these college students start out working in does not make paying back the loan easy. Because of these circumstances, many people are worried about the affect that student loans have on their credit.

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.

When a college student graduates with a large amount of student loans, there is a good chance that it is the highest amount of debt they have ever had; hence, it is not surprising if a drop in their credit score happens. Most of the time, we think our credit is in good shape as long as we are continually paying back our obligations; however, your credit score also evaluates your debt level. Therefore, a high amount of student loan debt will definitely affect your 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.

For those students out there who have not graduated yet, a great idea to help with the situation is to begin making interest payments now. Although in most circumstances, the government allows you to defer interest payments until after graduation, you might find yourself in a better situation financially if you can begin to pay the interest. One of the reasons that student loans creates such a problem for people is because the interest adds up so quickly, causing most students to graduate with more debt than they anticipated.

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.

For many a student loan is necessary and although it may be a tad risky for your credit, there are ways to safeguard your credit and pay off your student loans in the process. Responsibility is key. And, when you are paying them back, prioritize them so that your credit is protected.

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