How Will Student Loans Affect Your Credit Score and Access to Loans?
Student loans have an impact on your credit score like other debts do. On-time payments will favor your score, while defaulting will make it drop. If you happen to have low credit ratings and think a student loan may be the culprit, you should check out student loan credit repair New Jersey.
Since student loans are installment loans, they will weigh in on your credit report’s critical components, such as your payment history. What’s more, a record of a defaulted payment will feature in your credit report for seven years. These facts mean that maintaining a good credit score is not an option.
Ways That Student Loans Affect Your Credit Score
To fully understand the response to “do student loans affect credit score,” you must understand how credit bureaus determine your credit rating. Usually, lenders can use either the FICO® or VantageScore credit-scoring models. The former is relatively popular. Thus, it is the better formula to use when explaining the student loan’s effect on scores.
FICO® gives a score ranging from 300 to 850. The higher the score, the higher your chances of having your loans approved at favorable rates. The model considers five key elements, which contribute to your total score in different proportions. A complete list of the elements under consideration entails:
• Payment history – 35%
• Amounts owed – 30%
• Length of credit history – 15%
• New credit – 10%
• Credit mix – 10%
As you might be thinking, student loans affect most of the elements enlisted above. After receiving the loan, you start creating a payment history that may make or break your score. Also, maintaining large outstanding amounts of the student loan makes lenders perceive you as a risky debtor. Consequently, your credit rating takes a hit.
Student loans also affect the length of your credit history. If you make on-time payments over an extended period, the effect on your score would be positive. The loan also contributes to your credit mix. It allows lenders to view you as having multiple credit lines, which increases your credit score.
What Happens If You Do Not Pay Your Student Loan?
The aftermath of non-repayment depends on whether you took a federal or private loan. Federal student loan servicers will declare you delinquent 90 days after missing a payment. Their private counterparts will do so after 30 days.
If you took a federal student loan, lenders classify you as a defaulter if you miss payments for 270 days. Private loan servicers give you a 120-day window before declaring you a defaulter. The creditors may either file claim with the government or sell your account to debt collection companies to recover their monies. Before it gets to this stage, be sure to engage student loan credit repair New Jersey services.
Take Control of Your Student Loan
Are you still wondering how do student loans affect credit scores? Well, they contribute to the key elements that bureaus consider when determining your credit rating. You also understand that your access to loans may significantly impact your ability to realize your goals of owning a house, car, and other possessions that make you live comfortably.
At Emerald Credit Solutions, we take the necessary steps to improve credit scores impaired by student loans and other factors. After signing up on our site, our financial planning experts initiate and implement a process that may see your credit rating soar.
Call us at 844-882-6141 to learn more about what Emerald Credit Solutions can do for you. You may also visit our website https://emeraldcreditsolutions.com/.