How Student Loans Can Impact Your Credit Score

Blog Post08/20/2015
Student Loan Advice

If you’re one of the 43 million students who took out a loan so you could attend college, it’s important to know how those loans can affect your credit score. With so many factors that contribute to your credit score, it’s essential to educate yourself on how your student loan can affect it.

Debt-to-Income Ratio

How much debt you have compared to the amount of income you earn is referred to as your debt-to-income ratio. If you have a lot of student loans and a low income, this might make it difficult for you to finance large purchases, like a house. Make a plan to pay down your student loans as quickly as possible. The faster you pay them down, the sooner your debt-to-income ratio will improve so you can put yourself in a better position to be approved for loans, like a mortgage.

Missing Payments

Another way your student loans can impact your credit score is if you make the payments past the due dates. If you’re late with payments, it’s likely that your credit score will be negatively affected. Make every effort to pay on time. If you find yourself in a situation where you can’t do so, thankfully your creditor may give you a couple options.

 

Deferment Option

If your student loan payments are overwhelming, your first option is to defer them until a later date. Check with the creditor to see if this option’s available—deferring your loans will give you a little time to improve your income situation so you can more easily afford the payments. Usually, you’ll still be charged interest during this time, which will add to the balance you owe. Because of this, your payments might actually be higher by the time you’re required to start paying again.

Repayment Option

You may be able to apply for an income-based repayment plan if you’re unable to defer your student loan. The lender will adjust your payment based on your income. Most of your payment will go to interest, however, so you may want to develop a plan to pay more than what’s required if you want to pay your loans off more quickly.

Disclaimer: The information posted to this blog was accurate at the time it was initially published. We do not guarantee the accuracy or completeness of the information provided. The information contained in the TransUnion blog is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation. For complete details of any product mentioned, visit transunion.com. This site is governed by the TransUnion Interactive privacy policy located here.