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Student Loans Can Improve Your Credit Score

Student Loans Can Improve Your Credit Score

Taking out student loans is becoming an expected part of college life for many young Americans. Rising tuition costs mean that college is usually unaffordable without loans, but most families believe that education is still a valuable investment. A common fear is whether or not taking out student loans can harm the student’s credit, and their future ability to make purchases such as a home. However, student loans in and of themselves do not necessarily help or harm credit ratings. Whether or not the student responsibly handles paying off the loans is what ultimately influences credit.

Making payments on time

By far, the most important thing to do for your credit if you have student loans is to pay your monthly bill on time. When it is time to pay back your loans, you will be issued a monthly payment amount and a monthly deadline. It is critical to always pay this amount by the deadline each month. Even if you have to sacrifice recreational activities or new purchases, stay committed to paying the monthly minimum amount. If you do this, it will show banks and other lenders that you are a responsible borrower and that you know how to budget correctly for a loan. This can increase your likelihood of being approved for a home loan or a car loan. Even if you have debt, lenders would much rather see that you have debt but know how to pay it back, rather than see that you do not know how to handle debt.

Default versus deferment

It will hurt your credit if you make late payments on your student loans. Continually failing to make payments will put your student loan into default, which means you did not fulfill the conditions of the loan. This is very serious, and will have a negative influence on your credit. Deferment is different, and is an easy way to handle the situation if you have difficulty making payments. Most loan companies offer up to several years of deferment, which means that you can temporarily take a break from paying your loans under a specified agreement. Deferment does not negatively affect your credit. It is a way of professionally communicating with your lender.

If you need assistance with questions regarding your student loans, Attorneys Tax Relief can provide valuable advice.