In this article, you will get all the necessary information pertaining to How Does Not Paying Student Loans Affect Credit. Video reference below.
If you’re having trouble paying your student loans, the first thing to know is that you’re not alone. Student loan debt in America is a crisis, and despite the fact that many people with student loans would like to pay them off, it’s just not always possible.
But what will happen if you don’t pay your student loans? Will it affect your credit?
First, let’s talk about the types of student loans: federal and private. If you have federal student loans, there are several options for dealing with them (which we’ll discuss below). If you have private loans, then it’s up to the terms of your loan agreement.
No matter what type of loan you have, if you stop paying it and default on it, that will affect your credit score—and negatively! But there are some important factors to consider when looking at how this will impact your credit.
Does Not Paying Student Loans Affect Credit
Yes, having a student loan will affect your credit score.
Your student loan amount and payment history will go on your credit report. Making payments on time can help you maintain a positive credit score. In contrast, failure to make payments will hurt your score. Establishing a good credit history and credit score now can help you get credit at lower interest rates in the future. If you think you may not be able to make your payments, contact your servicer to find out more options.
how to increase credit score with student loans
Your credit score represents your creditworthiness, and it affects everything, from interest rates on credit cards to your ability to rent an apartment. If you have student loans, there are a few things you can do to ensure that you’re building a higher score.
Pay on time
Because payment history makes up such a large part of your credit score, it’s imperative that you stay on top of your student loan payments. Making timely payments is one of the best ways to use your student loans to build credit – by being consistent with your payments, you’ll begin to see your credit score rise over time. To help you stay on track, you can often set up autopay with your lender; doing so will ensure that you pay on time every month and could also get you an interest rate discount.
If you’re having trouble making your payments every month, you can also look into adjusting your repayment plan. With federal student loans, you can sign up for an income-driven repayment plan to lower your monthly payment, or you could apply for deferment or forbearance to temporarily pause payments without affecting your score. Refinancing private student loans into a lower interest rate or monthly payment could also help you manage your loans month to month.
Diversify your credit mix
While you should never take on student loans with the sole intention of improving your credit score, they can benefit your credit mix — the number of different types of credit in your name. For instance, if you have both a student loan and a credit card open at the same time, your credit score may see a bump.
Make many years of timely payments
Your credit score will rise along with the average age of your accounts. Having accounts open for many years could improve your credit score over time.
Federal student loans have a standard repayment term of 10 years, and private student loans often have options ranging from 10 to 20 years. Making payments on your student loans for that length of time will boost your score, especially if you’re new to credit.
The bottom line
Student loans can play a positive role in building good credit — as long as you keep up with your payments. By building your credit, you may qualify for cheaper student loan refinancing rates, helping you save money on your student loans overall.
Having good credit can also help you in other areas of your life. You might be eligible for a lower rate on a mortgage or car loan, or you may qualify for travel rewards or cash-back credit cards. Your credit score touches most parts of your financial life, so prioritize your student loan payments to ensure that you don’t fall behind.
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