One of the basic questions a lot of fresh graduates have in mind, whether or not the student loans affect credit score for fresh graduates. The answer is student loans affect your credit score. Now whether it affects in a positive manner or a negative one, this depends on how responsible you are about it. Your money managing habits play a significant role in this regard. The financial decisions made as fresh graduates or during your study program when you sign up for a student loan, it can have long term impact on financial wellness overall. And credit score plays a vital role in this regard.
How do Student Loans Affect Credit Score?
After the fact being established that student loans do have an impact on your credit score in the future, it is essential to know how it impacts.
Your Loan Repayment History
This accumulates for about more than 30% of your credit score in your financial reports and is therefore extremely important to be cautious about. A slight dip in this part could impact your overall credit score in no time at all. If you have been consistent and timely in the payments of your student loan, it has a positive impact on your credit score as a result. Defaulting in this part results in a difficult time catching up with the desired credit score even after you’ve entered your professional life.
Responsible Behavior In Case of Repayment Inability
When we discuss timely payments, it is important to keep into consideration the fact that there could be times when there could be a situation of being tight on cash. In such cases, repayments of student loans become very difficult. This is where your responsible behavior pitches in. instead of skipping payments overall and being careless about it (that could cause a major hit to your credit score even as a fresh graduate), you need to devise a plan about alternate options.
Some of the simple solutions include modifications in payment plans where you get the lender to reconsider the payment schedule and amount. Related to the previous option is the option of repayment with income which delays repayments with the consent of the lender. This helps in keeping your lender in the loop and shows your efforts about the credit management. Also, in severe cases, you can look up if you are eligible for loan forbearance which will keep the repayment plan at a halt for a given period until you regain your financial momentum.
Experience with Credit
One of the factors that influence your credit score is your experience with credit and how long it takes to build credit. That translates to, how much of credit history there is in your name and what kind of history is it. Since college students have an almost nonexistent history, this could be the time to start building it up for yourself. The reason being, as you start managing your finances and credit in particular, you start gaining experience and learn about the ups and downs of it. Also, the credit experience helps in future loan applications. The skill you learn about financial management in this situation helps up your credit score game.
Various Credit Types
Another important factor that is impactful for your credit score, is various types of credit which you have experience with, under your belt. The diversified credit types help once again in upping your learning curve of financial and credit management. This, as a result, helps in adding to the credit history. Lenders can see for themselves how your credit report has been replete with various types such as car loans, mortgage, etc. and are able to identify if you could be the candidate for a large amount of loan in the future. As a fresh graduate, you might not have a lot of opportunities to gain credit score this way, but if you do, do not hesitate.
If there is something not enough emphasis can be made on, is how student loan broadens your horizons in the financial world. This could be your first step outside your comfort zone into the realm of the complex financial world and the decisions you may take in the future. To embark on that journey early on is only going to lay a solid foundation for you which eventually helps in solidifying the credit score and not only increasing it but also meanwhile helping you learn a thing or two about personal finance.
Student loans can greatly affect your credit score and that mainly depends on how much you are able to manage without fail and how well you’re at it. It is a wonderful idea to begin with as it helps create the groundwork for a strong foundation to lay your financial journey on. And as fresh graduates, it is recommended to start with collecting credit score as early as possible to help future financial goals.