Student loans and your credit
How student loan repayment can benefit or damage your credit score
Federal student loans are taken out by young students, so you often don’t even need a credit history to qualify for the money you need. But that doesn’t mean that student loans don’t influence your credit. The manner in which you pay your loans back has a great impact on your credit score that can help build your credit or hold you back.
How student loans can help or hurt your credit score
While you don’t have to be straight out of high school to take out a federal loan, the majority of applicants are in that exact situation. So there’s a high chance that you don’t have an extensive credit history when you take out these loans. Paying off your student loans offers you a way to build credit – as long as you have the ability to pay them back according to schedule.
If you cannot pay your loan in a timely manner, then your credit score will bare negative consequences; instead of building your credit history, you will be damaging it. This can have further impact with lenders and creditors down the road. If you have a poor credit score, you may not get approved for future loans and lines of credit, or you may face high interest rates and harsh terms and conditions.
Ensure your student loans don’t ruin your credit
It can be challenging for students to pay back student loans when they don’t have sufficient income from their jobs. High tuition and living expenses often lead to large student loans that require you to start repaying the loan about six months after graduation. The payments add to your monthly expenses, at a time when you are just starting out and income may be limited.
If you can prove financial hardship, you may be eligible for a repayment assistance plan. For more details on eligibility, and options, it is best to contact the National Student Loan Centre. Some of the options available may allow you to extend the loan or reduce the monthly payments with minimal impact on your credit.
An alternative solution is to consolidate your student loans. Similar to credit card consolidation, just for a different type of debt. This simply means that all your federal loans will be combined with your provincial loans into one payment that may be potentially lower than what you are paying with separate payments. Student loan consolidation will depend on the province or territory in which you live.
What are the benefits of paying off consolidated debt?
Regardless of what debt you are talking about, consolidated credit card debt or student loan debt, you will always benefit by paying off your debts in full on a monthly payment schedule. If you use debt consolidation, restructuring your debt payments will allow for you to pay less each month, but you will still pay back everything that you owe. If your creditors and lenders approve the reduced payment schedule, your credit history will benefit if you pay off your debts.
In that regard, debt consolidation can help you rebuild your credit if you have damaged your credit score due to missed student loan or credit card payments. Since you can still use student loan consolidation and debt management programs if you have bad credit lines, these solutions provide an effective way of getting out of debt, while building your credit history at the same time.
If you are struggling with debt and need advice on how to pay back your student loan, call Consolidated Credit
Today at , and a trained credit counsellor can help you. Or request a Free Debt Analysis online.