Student Loans And Your Credit Score
During the summer months recent graduates from across the nation are currently updating their resumes, going to job interviews, figuring out where will be the next place they call home, and building their own nest out in the real world.
While this is an exciting phase of the recent graduate’s new life after college, it is a very concerning and somewhat stressful time as well.
More and more students are graduating with high student loan debt than ever before.
Recent research shows that Millenials (Those comprised between the ages of 18-34) know little about how that burdensome debt can really affect their credit scores and how hard they need to work to have great credit.
So how bad is it really?
Well recent data shows that only 40% of Millenials claim to have a somewhat good understanding about their credit scores.
Moreover, only 65% of Millenials could name the 3 main credit bureaus. And more concerning, only 47% of them knew that age is not a factor that affects their credit scores.
“Most troubling is that only 42% of Millennials know that a credit score measures the risk of not repaying a loan rather than factors such as knowledge of, or attitude to, consumer credit,” said CFA Executive Director Stephen Brobeck. ”
Consumers should be aware that they can take steps to reduce this risk and improve their scores, most importantly by making all loan payments on time.”
Since a good credit standing is KEY to owning a home, auto and other ownership, how can graduates improve their credit scores and make their future dreams a reality?
Here we offer a couple of ideas:
Access credit reports
The research shows that individuals who have obtained their credit reports previously knew significantly more about their credit than those who have not.
If people are looking to improve their credit, it is important to become more “credit literate”, review credit reports and find out existing scores.
Obtain a free copy of a credit report from all three national reporting companies at www.annualcreditreport.com.
Pay bills on time each month
Making late payments on monthly bills does more than just damage credit scores. It causes people to waste money on needless late fees and additional interest charges.
Paying bills on time is the most effective way to pay bills off quickly and, ultimately, maintain good credit health.
Avoid maxing out a credit card
Credit cards carry some of the highest interest rates around and the more people charge on their card, the longer it will take to pay it off.
Maxing out a credit card may also damage a credit score because it will appear as if people are overspending their limits.
Pay down the highest-interest-rate bills first
If people are making the minimum payment on bills each month, it’s likely that they’re going to be paying interest. Some bills, such as credit cards, will carry higher interest rates than other bills, like student loans.
After setting aside the money necessary to pay the minimum balances each month, use remaining funds to pay down the highest-interest-rate bills first. This will save money in the long run.
Don’t take out too much credit at the same time
Some lenders also look at the debt-to-income ratio. A high percentage ratio can signal to lenders that monthly debt payments are more than what gross monthly income can accommodate.
Therefore, carrying a heavy credit balance may hurt a credit score because it suggests people may not be managing their finances wisely. Work towards maintaining at least less than 30 percent maximum credit on each credit card.
The pathway towards having good credit is sustainable if people can consistently demonstrate the ability to manage credit accounts without becoming overextended and missing payments.
Much like earning a degree, improving credit takes hard work, dedication and time. But, if people develop a sound plan and stick to it, they’ll achieve the scores they deserve in the end.
Makishta Archer says
I wish to clear my student loans so I can further my future and straighten out my credit.
Amy Blatterfein says
You’re right, clearing up your student loans is the best first step towards raising your credit score.
If you’d like some help, give us a call at 877.433.7501. One of our experienced student loan consultants will be able to go through your loans with you and see what options you have.
Or simply click this link to schedule a consultation: http://bit.ly/2nIykTH
Joe McNabb says
I just really want to clear my student loan so I can go back to college I have 5 kids I need to make something of myself I had two years in Del Mar but I had to stop working to support my kids but I need to go back to school please I need to better myself and my family