Student Loans

Student Loans

Student loans are loans given to students in order to help them pay for tertiary education and all related fees, for instance tuition fees, learning materials and supplies, as well as living expenses. Usually such loans differ from other types of loans as their interest rate is considerably lower and the reimbursement schedule may vary while the student is still in school.

As frustrating as it is to pay off the student loans, paying the student loans on time can help the credit score go up.

Credit score is affected both negatively and positively by student loans, depending on the payment habit of the student. Such loans have longer repayment terms, and the credit score goes up because as a result of longer credit history. Payment history plays a big role in the credit score rate, thus paying the loan off monthly and on time will drastically help increase it. However, if the student is neglecting payments or makes late payments, the credit score will be harmed.

Since loans represent how an individual appears to creditors, it is significant to understand how loans impact someone’s credit.

Do student loans affect credit?

No matter what type of loan someone has, all student loans are a representation of the amount of money lent to a student, which in any way affect the credit.

When student loans are taken care of by making at least minimum monthly payments, they increase the credit score by creating a positive credit history. As a consequence, in the future students will have lower payments to make when they will decide to buy a house or get a car loan.

If you pay late or skip a payment

It can happen that someone can forget to pay the loan fees on time. One late payment won’t hurt the credit score much; credit score starts dropping only when the creditor reports the late payment to one, or more often, all three credit bureaus. The period of time before the late payments is first reported depends on the type of loan: Federal Student Loans and Private Student Loans.

  • Late payments for Federal Student Loans are normally first reported upon 90 days from the first date of delinquency.
  • Late payments for Private Student Loans are reported upon 30 days from the first date of delinquency.

However, sometimes, creditors can report late fees as soon as a payment was missed.

In case the creditor reports the late fee, it will remain on the credit report for as long as seven years.

How credit scores affect new student loans

All student loans have an impact on the credit score. However, it is not necessary to have a good credit score in order to get a Federal Student Loan.

For nearly all types of Federal Student Loans, as well as federal loans for undergraduate students, it is not required to do a credit check. On the other hand, federal direct PLUS loans, applicable to parents and graduate students, do need a credit check, but the credit score will not have an impact on the interest rate. All PLUS loans given out in the same year have the same interest rate.

Private Student Loans need to have at least one borrower with good credit history. The creditor will do a credit check to decide if an individual qualifies for the loan. The better the credit score, the lower the interest rate will be. Generally, undergraduates are required to have a co-signer to be entitled for a private student loan.

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