It’s easy to be disappointed with your student loan debt. Not only do you have to pay back thousands of dollars, the interest adds up. It eats away at your hard earned money and could prevent you from buying a house or a wedding.
But while student loans can be a huge risk, they can also help you increase your credit. If you’ve ever wondered, “How can I increase my credit?” here are some ways student loans can give your credit a boost.
Your credit has an impact on everything you do
Credit affects everything. Your credit score represents your creditworthiness. The better the story, the higher the score.
Your score is calculated using your credit history and your credit usage, that is, the amount of credit you use versus the amount you have available. It also includes the length of your credit and the variety of accounts you hold, from credit cards to student loans and auto loans.
Are you looking to buy a house or a car? Your credit will be verified. Need to move into your own apartment? Better have good credit. In some cases, your credit is also a factor in employment decisions.
If your credit is poor, or if you have no credit history at all, it can be difficult to meet basic goals, like renting an apartment or getting credit card approval. Having good credit can help you improve interest rate on student loan refinancing, auto loans, etc.
How can I build my credit?
Student loans are installment loans. These differ from revolving lines of credit, such as a credit card. Installment loans are granted once and repaid over a fixed right place period.
Nick Ducoff, co-founder of Edmit, an online resource for college cost research, said student loans are useful for young adults who aren’t ready to enroll in revolving credit.
“Paying off your student loans on time can have a positive impact on your payment history and the amount owed,” said Ducoff. “Staying On Top Of Your Student Loans To Boost Your Credit Rating” [to] the 700 range when you need to apply for a larger loan. ”
Installment loans affect your credit profile, but the impact is up to you. It doesn’t matter if you have federal or private student loans. What matters is that you are responsible for your debt and make payments on time.
Paying off your student loans on time will increase your credit and improve your credit score.
How to improve credit with student loans
If you have student loans, there are steps you can take to make sure your loans are helping you get good credit.
1. Make all your payments on time
“Using your student loans to increase your credit isn’t always easy, but it’s simple: Make every payment in full, on time,” Ducoff said.
Creditors look at your payment history to determine your creditworthiness. If you’ve missed or made late payments, your credit score will suffer. While payments aren’t the only thing that affects your credit score, they are the most important determining factor.
If you’re behind on payments, it’s time to make a plan.
“It’s important to know your ability, both financially and personally, to make payments on time every month and then define a system that will prevent you from missing a due date,” said Ducoff.
Missing payments can hurt your credit report. Late payments will stay on your credit report for up to seven years. If you had a late payment on your credit report today, it wouldn’t go away until 2025. Plus, the more payments you miss, the more delinquency marks you get on your report, which means the more your score collapses.
To help keep your payments on track, use automatic payment through your loan manager. It deducts the payments from your bank account each month. You can also set calendar reminders to make sure you submit your monthly payments.
2. Make your payments affordable or get help
If your payments are huge and you have a hard time making them every month, you can skip one or two periodically. But remember rule # 1: always make your payments on time.
So what should you do if you can’t afford your payments?
Talk to your loan manager and see what options are available for your situation. You may be eligible for a repayment plan or income deferral until you get back on your feet.
“If you find yourself in a difficult situation and cannot make a due date, you should contact your lender immediately to discuss payment options,” Ducoff said. “Lenders don’t want you to become a credit risk; they are encouraged to work with you to find a repayment plan that you can stick to. ”
Ducoff warned that even waiting for a missed payment could mean interest is starting to accrue. This would make it more difficult to regain control of your payments. You may be eligible for deferral or forbearance, where you can temporarily suspend payments without harming your credit.
3. Consider refinancing a student loan
Keeping your student loans in good standing is a great way to build your credit. But managing multiple loans can be overwhelming.
If you want to make your loans more manageable, you may want to consider student loan refinancing. Refinancing means that you will make one loan payment rather than several more. If you qualify, you could save money by reducing your interest payments.
Refinancing can help keep your payments on track. This will help you build good credit.
Use your student loan debt to build credit
Student loans can play a positive role in building good credit, as long as your payments are manageable and you follow them.
It can help you in other areas of your life. With good credit, you may be eligible for other credit incentives, such as lower rates on a mortgage or car loan.
Paying off your student loans can seem daunting, but doing it the right way will help build your credit and your financial future.