A student loan is part of your credit report, and therefore, it will directly affect your credit score. It’s an installment loan, the same as a mortgage, personal loan, and car loan.
Therefore, it has a direct bearing on the length of your credit history, credit mix, credit payment history, and other factors that determine your credit score. If you consult the best credit fixing service provider, they’ll advise you on what to do with your student loan to improve your credit score.
How a Student Loan Will Affect Your Credit Score
As noted above, a student loan belongs in the same category as personal loans, mortgages, and car loans. Therefore, it affects your credit score much like any other loan does.
You’re expected to repay your student loan as agreed, often with interest. Nevertheless, a student loan comes with a significant grace period within which you’re required to pay before you can be reported to credit bureaus for late payment.
Because your student loan is an installment loan, you are required to pay a specific amount of money for a certain period. This period is fairly longer than the one given for other types of loans. Unfortunately, many borrowers are still unable to clear their student loans within the agreed period, causing their lenders to report them to credit bureaus. Of course, lenders don’t report late payments immediately after your first late payment.
For federal student loans, creditors will give you a grace period of at least ninety days before they report you, while private student loan lenders will report you after thirty days. When the lender reports to a credit bureau, the information about the late payment, also referred to as ‘delinquency,’ will appear on your credit report for seven years.
This will lower your credit scores, making it hard for you to obtain a loan–but if you believe the delinquency report is inaccurate, you can file a credit dispute with the credit bureau and ask them to fix it. Of course, there’s no guarantee that the credit bureau will remove the late payment information from your report. In fact, the dispute might cause your credit score to drop.
Why did my credit score drop after the dispute? A credit dispute will cause your credit score to drop if the credit bureau confirms that indeed the late payment information added to your credit report is accurate.
How Will Paying Your Student Loan Improve Your Credit Score?
If you don’t want your lender to report you to the credit bureaus, you have to repay your student loan on time. While late payments will ruin your credit report and lower your credit scores, regular and on-time payments of your student loans will build your credit score.
A student loan is a perfect choice when you want to do credit mixing–which means having different types of credit accounts, including mortgages, credit cards, student loans, personal loans, car loans, etc. Credit mixing creates credit diversity, helping you to appeal to more lenders.
Many creditors are attracted to borrowers who can prove that they’ve been able to successfully manage multiple credit accounts for a considerable period. So, getting a student loan on top of your credit card is a plus for you if you can repay it promptly.
It will become part of your lengthy credit history and will help to boost your credit score. Your potential future lenders will use your long credit history to determine your eligibility for credit, so clearing your student loan on time will have a lasting impact on your credit report.
Lastly, if your student loan has lowered your credit score, you should work with a reputable credit repair company like The Phenix Group to improve your score and become eligible for more credit. Our experts know the best tricks to use to improve your credit score; we’ll also advise you on how to lock your credit report to prevent unauthorized access to it!