With economic downturn, it is not surprising to see students defaulting on their loans as they have no job in hand. An increasing number of students are finding it difficult to repay their student loans. You cannot file for bankruptcy for this loan and it has to be paid off. Defaulting on these loans affect your mortgage applications, auto loans, et al. It is not the loan that affects your credit score but the way in which you handle it that affects it.
- Student Loans And Credit Report – Like all the other loans, Student loans also appear in the credit report. Factors like defaulting on these loans affect the report and the score badly. As you cannot file for bankruptcy, you will have to find ways to repay this loan.
- Defaulting On Student Loans – Student Loan delinquency occurs after 270 days of non-payment. And after it becomes delinquent, it remains in your report for seven years. This will cause a major ding in your credit score. To avoid a delinquent student loan, get your loan refinanced or seek counseling.
- Refinancing Student loan – This is one of the easiest ways in which you can repay your student loan. Refinancing can help you to get a low interest rate and you can save a lot of money. Also, with the lower monthly payments, you will be able to repay the loan in time and improve your score. Approaching credit unions and banks is the best way to get this loan refinanced.
- Early Repayment Of Student Loans – The early repayment of student loans will help to improve your credit score as the “debt to income ration” is also lowered simultaneously. This means that when your score improves, you will be able to get better mortgage rates.
- Student Loan Deferment And Forbearance – These are two options that you have when you are unable to repay your student loan. It may be due to financial hardship but remember that when your loan repayment is suspended for some time, the interest will still accrue. You will have to repay the loan along with the accrued interest at some point or the other. As for the question whether this will harm your credit score, it depends upon your initial score. If you already have a low score, non-payment of the loan will damage your score further. Writing to the credit bureaus and explain the situation to them may help.
As most students graduate with student loans weighing heavily on them, it is best to start a repayment plan to pay off the loan as quickly as possible. Do not default on the loan under any circumstances and consider options such as grace period, deference and forbearance et al to ensure that the loan does not harm your score.