Should You Be Concerned About Your Credit If You Have Student Loans?
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.
According to statistics, the most difficult part about the future of college graduates with high levels of student loan debt will lie in their ability to obtain credit. Because most recent graduates have a high level of debt and a lower initial salary, creditors will most likely be hesitant to give them access to new credit. Also, if their past credit rating is not good, it will make obtaining credit even more of a challenge.
Usually, for most college graduates, the debt they have accumulated with student loans is the largest sum they have ever had. For this reason, their credit is affected. Many times, we think our credit is fine if we pay our liabilities, however, your credit rating also considers your total level of debt. Therefore, it is not surprising that college students who graduate with high debt will see a drop in their credit score.
One of the best ways to maintain a decent credit rating is to plan for dealing with the student loans now. Since your credit score evaluates your level or debt and payment history, a successful payment plan will not only lower your debt level, but it will also help establish consistent payment habits. In doing so, you will find that you can help your credit score even though you may feel that it initially was lowered upon graduation.
Also, for those who have student loans and have not yet graduated, one of the best tips for helping your credit and the payment process is to start paying on the interest now. The government usually allows you to wait until after graduation to begin making payments, however it can be surprising how much the loans add up to over time. If you can pay some while in school, do so; and, you will be avoiding costly interest and a larger sum to be paid back upon graduation.
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.
Just like any financial liability, it is definitely not wise to skip payments for your student loan, because it will affect your credit. Instead, a good idea is to contact your lender and try to negotiate a payment plan that works better for you. Most lenders are surprisingly nice to work with; and, if you contact them, they will most likely be willing to help you find a solution to your troubles rather then letting your skip payments. Talk with them if you find yourself overwhelmed, and demonstrate your willingness to act in good faith.
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.
Even though student loans cause debt and may be difficult on your credit, they do provide education. If you have to take out student loans, just make sure you are responsible and make every effort to pay them back quickly and on time.
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