By David Castillo
How Do Student Loans Affect Your Credit? Student loans stalk like a horror movie slasher villain. As early as 2014, student debt topped $1 trillion to confirm its status as one of debt’s essential boogeymen. However, the question the astute reader wants to know is, how do student loans affect me?
Your Credit Profile Starts with Student Loans
Current law prevents free-for-all marketing to young people. Consumers under 21 applying for a credit card have to follow a stricter process, such as validating independent income.
As such, by the time you’ve finished your introduction to Spanish, there’s a goo
d chance you’ve already begun borrowing from the federal government for student loans.
Credit Card Management is 30% of Your Credit Score
Once your credit profile is open, you receive a three digit score broken into five different pieces: payment history, average age of file, variety of credit accounts, inquiries, and credit card management (or amounts owed).
Unless you have some miraculous way of paying off student loans immediately after the grace period, you will accumulate debt while struggling in physics class.
Missing a Payment Affects Credit Scores
Making payments is a like studying for those dreaded finals; waiting until the last minute rarely pays off.
Credit bureaus are notified by a student loan servicer if you’re 30 days late. Any significant time beyond the 30 days, and your account can be sent to collections.
Even though credit card management is 30 percent of your score, any negative impact will ripple into payment history, which is the largest piece of credit score pie.
Stay in School
As we like to say at The Credit Repairmen, credit cards are not evil, credit card debt is.
The best way to build positive credit is to take advantage of a quality education that provides a quality job. As the famous philosopher Nietzsche noted, “no one can build you the bridge on which you, and only you, must cross the river of life.”
Education is that bridge, and despite the horror of student loans, a college wage premium still offers better pay, and better opportunities.