Student loans are not only helpful for obtaining higher education, but also remain rewarding for your credit score. While this connection is not difficult to make, many people forget to connect the dots until the effects are laid out in front of them.
If you are thinking about how your student loan may affect your credit, the following details can give you a quick explainer on the topic.
They Start Your Credit History Early
If you want tips on building good credit while you are in college, student loans are the way to go. Before you get a student loan, you usually don’t have a credit score because it stands at an unscorable status. But after a few months of taking out your student loan, you can start a credit history. This can help you get new lending products more easily as you navigate your life as a student.
They Increase the Average Age of Your Credit History
When your credit history starts early, it also has an effect on the average age of your credit. This factor has a substantial influence on your credit score in the long run. According to credit report scoring models like FICO, the average age of your credit history holds a 15% share of your entire credit score. This means that through student loans, you can build a strong foundation for your future credit and financial comfort.
They Contribute to Payment History
When you make timely payments for your student loans, you can slowly but surely contribute to your credit score. This not only improves your score, but also allows you to access better terms like interest rates for your future loans. This makes it important that you turn to tools like a note taking app or budgeting app. Through these options, you can put together a budgeting journal and use it for making timely payments to your student loans.
They Add to Your Credit Mix
One of the best financial tips for students is understanding that your credit score depends on a lot of other factors like having different types of credit products on your name. A good credit mix includes an installment credit product like student loans and a revolving credit product like credit cards. After taking out a student loan, you can get a credit card to fulfill this requirement. This way, you can access future lending products more smoothly.
They Can Improve Your Overall Credit Score
When you make your payments on time, have a good credit mix, and have a higher average age for your credit history, it all contributes to the improvement of your credit score. Besides helping you fetch better loan terms, a high credit score can also help you find better deals through an insurance comparison platform. With it, it can also help you secure new rentals as well as jobs with a sensitive nature that are looking for financially responsible people.
They Can Influence Access to Future Borrowing
One of the biggest benefits of student loans for your credit score stands out as paving the road for you to secure better lending products like different types of loans. But this is where you need to understand that if you don’t manage your student loans like you are supposed to, you may end up affecting your credit score negatively and block your own chances of having a strong financial foundation for your life.
It’s Important to Properly Manage Your Student Loans
Once you go through these details, it becomes pretty clear that your student loans have a direct affect on your credit scores and all the different aspects that are associated with them. This makes it crucial for you to determine a path to paying off your student loans without defaulting on them. This is similar to reaching out to a financial planning platform to build a good investment portfolio, but for student loans, you typically make the repayment plan yourself.
After you get a good grasp on how student loans and credit scores are interconnected, you can determine exactly what you are getting into before you sign on to your loan. This helps you take care of your future finances from a place of knowledge.
