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Believe it or not, student loans can actually be beneficial! If managed properly, student loans can end up positively affecting your credit score and history—showing that you’re a responsible borrower. However, if mismanaged, student loans can end up negatively affecting your credit score. A negative credit score makes it harder for you to get loans or apply for larger purchases, such as a house, in the future. Here’s how to avoid that negativity:
Missing or Late Payments
First and foremost: pay on time. This is the easiest and most effective way to not only make repaying your student loans go as smoothly as possible, but also benefit your credit score.
Whether by setting up a loan calendar, put your loans on auto-debit, or consolidate multiple loans into one monthly payment, find a way to ensure you’re paying on time. Most federal student loans, and some private loans, have various repayment plans. Check out what repayment plans are open to you and decide which one will help you make on-time payments.
Student Loan Delinquency or Default
If you miss a payment, even by a day, you’re in student loan delinquency. And if you don’t pay for 270 days, your loan will default. You need to avoid these fates at all costs, as they’ll make repaying even more difficult, and hit your credit score hard.
If you do find yourself in delinquency or default, you need to get out of it ASAP.
Reasons to Avoid Bad Credit
Given that ‘bad’ is in the title, it’s a no-brainer that bad credit should be avoided. However, let’s go over a few reasons why to really hammer home why paying on time is important.
Good Credit = Lower Interest Rates
With a good credit score and proven credit history, loan lenders are more willing to give you a lower interest rate. This is great news if you plan on consolidating or refinancing your loans, or taking out a house or car payment in the future. Higher interest rates really add on to the total cost in the long run. Not to mention, interest adds up quickly and can overwhelm you.
Bad Credit Requires a Co-Signer
When you first took out student loans, you almost definitely needed a co-signer. However, with good credit a co-signer isn’t often needed, which is good news for you both. For you because you’ll probably get a lower interest rate out of it, and good for your potential co-signer because they won’t be responsible for repaying the loan if you can’t. (Co-signers can have their credit scores negatively affected if the borrower misses a payment too).
Bad Credit Costs More
Credit affects more than you might think. It’s not just student loans, after all, but any and all future loans, health and auto-insurance, and potentially even job prospects. College and student loans can be a great time to build your credit history for the better, so it’s worthwhile to put in the effort and stay on top of those payments.
