Do Student Loans Affect Your Credit?

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wood background with text Student Loans

Most people need to take out student loans to be able to afford tuition at university. In addition to considering how you’ll pay your loans back, you need to know how they’ll impact your credit. This is important because your credit score will influence everything from whether you receive approval to rent an apartment, take out a mortgage, or receive a loan to buying a car or starting your own business. Here are a few things you need to know about how student loans affect your credit.

Paying on Time

Around 35% of your score is based on your payment history and whether you pay on time. Making most or all of your student loan repayments on time will result in a high credit score. In addition, around 30% of your score is based on your debt-to-credit ratio, meaning you can boost your credit score by keeping your debt to no more than 30%.

Missing a Payment

If you miss a payment, your credit score will drop. You usually have 30 days before the lender reports the late payment to the credit bureaus.

Defaulting on Your Loans

If you stop making loan repayments entirely, the lender will report that you’ve defaulted on your loan to the credit bureaus. You typically have 270 days before a lender considers you to have defaulted on your loan. This will have an even bigger impact on your credit score.

The lender will send your defaulted loan to a collection agency. This will remain on your credit report for six or seven years (even if you do pay back the loan in full). During this time, you’ll have an R9 credit score, which is the worst rating.

How Student Loans Improve Your Credit Score

The severe consequences of failing to pay your student loans on time most months mean you should do everything in your power to make repayments. However, it’s important to note that student loans also improve your credit score — just the fact you have loans will boost your score over time. This is because your credit history accounts for around 15% of your credit score. As the years pass, your credit history becomes older, which has a positive effect on your credit score.

Types of Student Loans

Whether you already have a credit score may influence what types of student loans you’re able to take out. You won’t need a credit check to take out a government student loan, unless you’re a mature student (aged 22 or above). Since these loans have a fixed interest rate, they are your best option.

Private student loans, in contrast, are typically only available if you have a good credit score — a low or no credit score tends to mean you disqualify, unless you have a cosigner, such as a parent. In addition, private student loans have different interest rates. The better your credit score, the better the rate you’ll be able to secure.

Tuition is non-negotiable, but you can save money in many other aspects of your life. One key way is to find an affordable room for rent. Edmonton students can find a home at 1TEN on Whyte. Our suites are fully furnished, the rent is all inclusive, and you’ll be within walking distance of the University of Alberta, meaning you’ll also save money on furniture, utilities, and transport costs. Apply for your spot now.

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