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Understand How Student Loans Can Impact Your Credit Score

Author Gertrude Brogi

Posted Feb 16, 2023

Reads 10K

Student loans affect more than just your total price tag cost when budgeting for an affordable college choice. They can have a major impact on your credit score after graduation, so it’s important to understand how they work before taking out federal or private student loans. Knowing what you’ll pay and how to calculate monthly student loan payments is essential to managing credit responsibly.

When you take out a loan, it’s critical to pay it back on time; otherwise, the lender may report late payments to the three major credit bureaus. That can negatively affect your track record and ultimately drop your score. If you run into trouble with paying late, ask your lender if they would be willing to give you extra time or report the loans as being paid on time instead of reported late. Doing this will help maintain a solid record with the credit bureaus, which will help keep your credit score in good standing over time.

Overdue On Your Payments? Here's What To Do

Late payments on student loans can have serious consequences, from late fees to major credit damage. Knowing what to do when you're behind on payments can help you protect your credit score and avoid unnecessary charges.

When it comes to federal student loans, the servicer generally won’t report a late payment to the major credit bureaus until after a 90-day delinquency. This means that if you’re able to catch up before the 90 days are up, your bout with late payments won't impact your credit score. However, if you don’t make a payment within 270 days of the due date, your account will be reported as delinquent and it will stay on your credit report for seven years.

Private student loans lenders typically report late payments after 30 days to the major credit bureaus. They may also charge late fees and other penalties right away so it is important to contact them as soon as possible if you cannot make a payment on time. To keep your credit score in good shape, always try to avoid falling into delinquency and, no matter how bad things seem, don’t miss any more payments or else the situation might get worse.

A Credit Score's Impact on Student Loans

When it comes to student loans, having a good credit score can help you in many ways. Most federal student loans, including Federal Direct Loans for undergraduates, don’t require a credit check before they are disbursed. However, with graduate students and some types of federal student loans, there may be a credit check required. While your credit score won't necessarily affect whether or not you are approved for the loan, it can have an impact on the interest rate you’ll pay on the loan.

Undergraduate students do not usually need to worry about their credit score when taking out student loans. All federally provided student loans do not require any kind of credit check and are available to all undergraduate students who meet the eligibility criteria. On the other hand, private student loans typically do require a credit check before they can be approved and disbursed, so having good credit is important if you decide to take out private loans.

If you are considering taking out a private loan for your education expenses, make sure that your credit score is as good as possible before applying. A lender will look at your score as part of their decision-making process when deciding whether or not to approve your loan application and at what interest rate you’ll be offered. Having a good credit score will help ensure that you get the best terms possible on your loan.

No More Struggling to Keep Up With Student Loans

Dealing with student loans can be one of the most stressful aspects of attending college. Monthly student loan payments can take a huge chunk out of your budget and make it hard to cover other necessities. Fortunately, there are options available to help those who may be struggling to keep up with their payments.

For federal loans, you may qualify for an income-driven repayment plan that caps monthly payments at a percentage of your income. This modified payment plan makes it easier on borrowers since they don’t have to worry about large amounts due each month. Private loans may not offer this same kind of flexibility, but some lenders offer special offers or even temporarily pause monthly payments if needed.

No matter what kind of repayment plan you’re on, it is important that you handle payments responsibly as missing them could have a negative impact on your credit score. It is possible to keep up with student loan payments without letting your credit score suffer in the process.

Discovering if Your Federal Loan Servicer is Great Lakes

Federal student loans are managed by loan servicers, and 5 million borrowers have their federal student loans serviced by Great Lakes Higher Education Corp. In March 2020, when borrowers paused payments due to the pandemic, Great Lakes experienced a coding error that erroneously reported some of those paused payments as delinquent and sent that information to the major credit bureaus. This caused people’s credit scores to dip due to the delinquency.

In order to help borrowers affected by this coding error, Great Lakes provided an automatic six-month forbearance from March 2020 until September 2020 when borrowers resumed paying back their loans. However, many borrowers did not understand that this forbearance began in March and were reported as being late on payments due to a deferred status not being coded correctly. This resulted in a scoring factor in FICO credit scoring formulas which lenders use when making lending decisions about individuals. As a result of the incorrect coding for these borrowers, the credit scores generated were lower than the underlying credit report indicated they should be.

When it comes to correcting credit scores with Great Lakes, it is commonly offered just like with other major loan servicers and credit history providers such as Experian or TransUnion. If you think your credit reports may contain information from Great Lakes incorrectly reported to one of the three national credit reporting agencies (Equifax, TransUnion & Experian), you can check for free at – a government-run website where you can get your free yearly report from each of the three agencies mentioned above. If you believe there is an issue that needs addressing then Great Lakes asks that borrowers contact them first before contacting any of the three main credit reporting bureaus about the incorrect information on their credit reports. If contacting Great Lakes customer service about incorrect reporting please call 800-236-4300 for assistance.

Frequently Asked Questions

What is the average interest rate for a student loan?

The average interest rate for a student loan is typically between 4.45% to 7.61%. For more information on the specific rates available, please contact your local lender.

Is a federal student loan a good idea?

Yes, a federal student loan can be a great idea for financing your education. Federal student loans offer competitive interest rates and flexible repayment options, making them an ideal way to cover college costs. Learn more about the benefits of federal student loans today!

How does student loan debt affect my debt-to-income ratio?

Student loan debt is included in your debt-to-income ratio, which can affect your ability to qualify for other types of credit. Understanding the impact that student loan debt has on this important ratio can help you make informed decisions and maintain a healthy financial future.

What should I know before taking out a student loan?

Before taking out a student loan, you should consider all available options to fund your education, understand the repayment terms and repayment process, and be aware of any associated fees or risks. Read more to learn how to make an informed decision and find the right loan for your needs.

How does the amount owed on student loans impact credit scores?

Student loan debt can have a significant impact on credit scores; repayment history, amount of debt, and how much is owed relative to the borrower's credit limit all factor in. A timely payment history and keeping balances low can help maintain or improve credit scores.

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Gertrude Brogi

Writer at CGAA

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Gertrude Brogi is an experienced article author with over 10 years of writing experience. She has a knack for crafting captivating and thought-provoking pieces that leave readers enthralled. Gertrude is passionate about her work and always strives to offer unique perspectives on common topics.

She enjoys researching the latest trends and topics in order to provide her readers with the most up to date information. Her areas of expertise range from business, lifestyle and fashion to technology, health and wellness. Her articles have been featured in numerous online publications, and she is also an avid public speaker who loves sharing her knowledge with others.

As a woman, Gertrude strives to empower other women through her work by highlighting their successes and stories while inspiring them to reach new heights of success.

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