Are Student Loans Going To Hurt My Credit?
Everyone wants to get a great job, and because of that they usually spend the money to go to a good college - a good education usually means a better paying job. Yet, education is not cheap these days and therefore many people have to take out student loans to afford a college education. When graduation arrives, most students usually are able to get a job; however, the entry-level job is not adequate to pay of their student loans anytime in the near future. Paying of the loans becomes a major concern for these college students, and in addition the concern is whether or not their credit score will be in good shape with the amount of debt they have upon graduation.
Many people with student loans find it more difficult to get access to credit today, leading many to believe that their credit is suffering. While their credit may not be horrible, there are lenders or creditors out there who might be skeptical about giving them credit or a loan because they already have a high level of debt and their salary does not indicate the ability to pay off their liabilities anytime in the near future. Also, if your credit rating was poor in the past, student loans will only hamper it in the future.
Because you are a recent college graduate, you student loan debt is probably the largest debt that you have ever had, and this is one of the reasons it is going to effect your credit. Usually, we think of our credit rating in terms of our ability to pay back our liabilities, however, our credit rating also takes into consideration our level of debt. This is why your credit is going to be affected when you graduate and your student loans are high.
Although student loans can negatively affect your credit rating, you can keep your credit history in good standing with a successful plan for paying off your student loans. Your credit score evaluates your total amount of debt as well as your ability to make payments, therefore, when you establish a plan to pay off your loans it will not only help lower your student loan amount, but also help your credit score. Resolve to be consistent in your payment habits to keep your credit score as high as possible while your debt is also high.
Also, for students who have not graduated college yet, consider making payments on your interest now rather than waiting until after graduation. Usually, the government allows students to wait until after graduation to begin paying their loan balances; though, interest adds up and you can get a head start by making payments while you are still in school. One reason for the problems with student loans is that people do not realize the amount they have to pay back. Interest adds up overtime, and then they graduate with a larger amount than they anticipated having to pay back.
When you do graduate, most student loans allow for a grace period - time to find a job before you need to begin paying of your loans. Usually the grace period is somewhere between 6 and 12 months, however there is a good chance that you may find employment before then. Therefore, use that time to set aside money that you can use towards your first payment to the student loan. This way, your first payment is a decent amount, and it will start you out on the right foot financially.
After your grace period, you typically have a 10-year period to pay off your student loan. The amount you owe each month will be determined by this timeline; however, you can always and should if possible pay more than the minimum amount due. When you pay more than the minimum amount due, you will obviously pay the balance off faster and you will also pay less interest.
When it comes to payments, be sure not to skip payments due to financial difficulties or payments that seem too high. Try an alternative and consider contacting the creditor to negotiate a payment plan that you can actually pay. The lenders are usually great to work with and they are known for their willingness to help people avoid payment problems. Talk to them if your situation requires their help.
The most important thing you need to remember in regards to your student loans and your credit is to NEVER default - NEVER. When you default on your student loan, it could stay on your credit record for approximately seven years. And, if you take too long to pay it back or neglect it, you could be involved in a legal battle. In addition, your lender might have the power to garnish your wages and eliminate your tax refunds.
For many a student loan is necessary and although it may be a tad risky for your credit, there are ways to safeguard your credit and pay off your student loans in the process. Responsibility is key. And, when you are paying them back, prioritize them so that your credit is protected.
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