Student Loans and Your Credit Score: What You Need to Know

College is a big deal these days. Without furthering your education, climbing the employment ladder is next to impossible, yet the cost of college – whether out of state or local – is hefty. To afford two or four years, many students fall back on their parents if they’re able to help. As a last-resort, student loans pick up the slack, and for many, that’s where the trouble starts.

Student Loan Defaults

With the rough economic times that the United States has faced in the last several years, many college graduates are finding it hard to secure a job after school ends. While there is a grace period on student loans, it doesn’t help when the job search turns up empty month after month. According to, the student default rate in 2015 was 22.2% for Stafford loans alone.

Those who fail to make payments on time are taking the hit on their credit reports, which in turn, can also hinder the job search. You don’t want to run the risk of wondering if late payments can be removed from your credit report. While many qualify for deferments or forbearance due to hardship, lack of knowledge in the matter of student loans leads many to just not pay when the statements start rolling in.

Borrowing Smartly

One thing that’s very tempting for many college students, especially those on a small budget, is to borrow the maximum allowable amount. However, it’s strongly advised not to do this as it can ultimately hurt your credit. The more you borrow, the more you have to pay back.

While it may seem like a great idea to have the extra cash on hand, the responsible thing is to only borrow what you need and return the rest. Financial responsibility is your best bet to maintain a decent credit score.

What is a Good Credit Score?

There are many factors that affect your credit score: timely payments, amount of debt, and the life of your revolving credit accounts are just three of them. One thing that people don’t take into consideration is that the more debt you take on, the more likely you are to drive your credit score down.

If you’re looking to determine what is a good credit score, there are plenty of FICO guides that provide insight. Any score over 699 is said to be good while anything above 750 is excellent. If your score falls below the 699 mark, it’s best to obtain a copy of your credit report to make sure that the information is factual. If all looks good, you can boost your score by paying off overdue accounts, and this means your student loans.

Settling Student Loans

The good thing about student loans is that the lender is often more than willing to work with you in order to collect payment. They’ll evaluate your current financial situation and collaborate directly with you to come up with a mutually beneficial solution. If you cannot afford to make payments, you may qualify for a deferment or forbearance that will delay your payments until you’re in better financial standing.

The main thing that’ll help avoid a credit score hit is to borrow responsibly. If you’re already past the borrowing stage and in the default stage, you can still turn your credit around fairly quickly, providing your other credit accounts are in good standing.

Speak with the lender sooner, rather than later, so they know you are willing to work with them, this will usually keep them from sending your loans to a collection agency, which is a negative against you that remains on your report for up to 10 years.

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