7 Steps To Keep Your Student Loans From Affecting Your Credit Score

2. 7 Steps To Keep Your Student Loans From Affecting Your Credit Score The average college student graduated with $35,000 in student loan debt in 2017, and that number has been rising steadily over the past few years. If you’re one of these students or you want to avoid adding to the statistics, it’s important to keep your loans from affecting your credit score and making life more difficult than it needs to be.

3. Here are 7 steps you can take to make sure your student loans won’t get in the way of your finances or ability to get a home or car loan down the road. Step 1 Pay your loans on time. This one seems obvious, but remember, if you’re not paying your bills on time in general, student loans are even less likely to affecting your credit score—for better or worse. Show up for loan payments when they’re due. Don’t take out a loan you can’t afford. If something happens and you need an extension, talk with your lender about options. They may be able to help you if it looks like your financial circumstances have changed or if something unexpected has happened that makes it hard for you to pay when you were supposed to. Some lenders have payment plans in place specifically designed for students in transition, so make sure you ask about them before defaulting on a payment because of unforeseen circumstances.

4. Step 2 Understand how each type of loan affects your Credit Score. Some types of loans are less likely to impact your credit score than others, but it’s important that you understand which types are considered riskier and therefore take longer to get approved for. That’s because credit scoring systems consider any negative factors impacting your finances very seriously. Federal loans are considered very safe since they come with income-driven repayment plans if you can’t make payments on time. However, if you have private student loans, they may not be seen as favorable since they generally don’t offer these features.

5. Step 3 Pay in Full, on Time. If you are late on a student loan payment, even by one day, it will count against your credit score. But if you pay off your entire balance before it’s due, you will avoid paying any interest or penalties. That way you can ensure that when your school loan is reported to credit bureaus, they have no reason to ding your score for missing payments. The more positive information they have about your financial behavior—like being consistently on time with payments—the better off your score will be over time. Remember that bank loans aren’t included in federal lending records so don’t worry about them affecting your report.

6. Step 4 Refinance. Once you start making payments on your student loans, see if there are better deals out there on your original loans. Refinancing is something many people overlook when taking out student loans. You can find lower interest rates with other lenders and some loan programs may offer special protections like forbearance, deferment or income-based repayment options that will help keep your monthly payments down while you pursue another degree or change careers. Make sure you check into any plans that allow for deferred or graduated payments, which can help manage unexpected expenses by offering more breathing room at first when you’re not earning a full salary yet. Step 5 Become an Authorized User on Family Member’s Account (if Necessary) : If you’re serious about cleaning up your credit score, it may be necessary for you to become an authorized user on a family member’s account. But remember, you must do so with their permission, and they will ultimately be responsible for any late payments. If you agree to be added as an authorized user without letting them know beforehand, your request may hurt your relationship more than help your credit score.

7. Step 6 Refinance student loans with a private lender. Private lenders are willing to give more flexible payment options than most federal loan programs, which can also help your credit score. While interest rates are higher, you’ll have one less creditor for your monthly bill. Many students have turned their situation around by refinancing with a private lender—even if they had defaulted on their federal loans. As long as you meet certain criteria, many loan companies will consider refinancing even if you’re already in default. Step 7. Refinance student loans wisely Refinancing student loans may help you save money in interest over time. But before you take out a loan, make sure it’s going to be worth your while. Know what other lenders are offering and look for a low-interest rate—without application fees or prepayment penalties. You may be able to get a better deal refinancing federal student loans than private ones. Be aware that refinancing will change which credit bureau is reported to, so carefully check with each of them to see if any have lowered your score. If not, you might need to wait a little longer before applying again. Also note that a hard inquiry could lower your score by a few points temporarily until it normalizes again after being added to your report.

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