Does Student Loan Lower Your Credit Score?
- By: Evan Parker
Do you know that taking a student loan may adversely affect your credit score? You find your credit points going down once you obtain some student loans from any bank or from any lending agency even without defaulting on the loan. As a result you cannot hope to take the advantage of a low interest rate while repaying your loan. We know that maintaining a credit score up to or above 750 points is really great in terms of giving you a low interest rate upon your principal. But having a score below 500 simply deprives you of that benefit. You become liable to pay off your loan at a higher rate of interest and most of your money is skewed towards paying your interest rather than the principal.
Now you have to understand that unlike other form of loan, student loan entails some more complex implications that affect your credit score in a number of ways.
The creditors might report more to the credit bureaus than you actually owe
The pivotal factor behind your sinking credit score is that the actual amount you borrowed as a student loan is reported in triplicate on your credit record. If you have taken $2000 as a loan, it will be reported as $6000. Naturally the credit bureaus will score you down considering the huge amount of outstanding balance. This supposed distortion of facts not only reduces your score but also hikes to the interest rates on the loans that you might take in future.
Paying your loan before schedule just makes the score down
It may really sound queer when you find that your advanced payment is only lowering down your credit score instead of boosting it. But the logic behind it is that no creditor heartily wishes that you pay them off before the stipulated time and date. In that case, they lose the additional interest which they are supposed to earn from you. Therefore, it is obvious that if you pay off sooner than the due date, then the creditors might report against you to the credit bureaus.
Lengthy time span reduces the score
The time span agreed on the repayment program of any student loan usually takes ten or more years. Such a lengthy period of repayment program carries a negative item on your credit report. It is stated as ‘too long to pay off a debt’ on your credit. Though you are repaying your debt according to the agreement with your lender, still it badly affects your credit score.
Another disturbing issue is that a single student loan can be reported in a manner as if you have issued seven different loans. This is something that surely pulls your credit score down.
A good remedy is student loan consolidation
If you can congregate all your loans into a single channel and start repaying them as a single assignment through a ‘student loan consolidation’ then it will surely have a positive impact upon your finances. Therefore, it is really wise to connect any professional loan counselor or hire online consolidation services. There are many online websites available that will assist you in understanding student loan consolidation programs. Also, debt consolidation companies often help people to credit scores. If you follow this strategy then you might be able to pay off the student loan quicker and concentrate on boosting your credit score.
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This article has been contributed by Evan Parker. He is a content writer with darngoodblogging.com(http://darngoodblogging.com/). He writes on financial topics including debt, bankruptcy, money saving, investment etc.