It’s easy to be disappointed by your student loan debt. Not only do you have to pay back thousands of dollars, but interest adds up. It eats away at your hard-earned dollars and could hold you back from buying a home or marriage.
But while student loan debt can be a huge risk, it can also help you build your credit. If you’ve ever asked yourself, “How can I build my credit?” here are a few ways that student loans can give your credit a boost.
Your credit impacts everything you do
Credit affects everything. Your credit score represents your creditworthiness. The better the history, the higher the score.
Your score is calculated using your credit history and credit utilization, which is how much credit you’re using versus how much you have available. It also includes how long you’ve had credit and the variety of accounts you hold, from credit cards to student loans and car loans.
Looking to buy a home or car? Your credit will be checked. Need to move into your own apartment? Better have good credit. In some cases, your credit is a factor in employment decisions too.
If you have poor credit, or no credit history at all, accomplishing basic goals, such as renting an apartment or getting approved for a credit card, can be difficult. Having good credit can help you get better interest rates on student loan refinancing, car loans, and more.
How can I build my credit?
Student loans are installment loans. These differ from revolving credit lines, such as a credit card. Installment loans are provided once and paid back over a set period of time.
Nick Ducoff, co-founder of Edmit, an online resource for researching college costs, said student loans are helpful for young adults who aren’t ready to sign up for revolving credit.
“Paying back your student loans on time can positively impact your payment history and the amount owed,” Ducoff said. “Just staying on top of your student loans is enough to increase your credit score [to] the 700 range by the time you have to apply for a larger loan.”
Installment loans affect your credit profile, but how they affect it depends on you. It doesn’t matter if you have federal or private student loans. What matters is that you’re responsible with your debt and make on-time payments.
Paying back your student loans on time will build up your credit and improve your credit score.
How to improve credit with student loans
If you have student loans, there are a few things you can do to ensure your loans are helping you build good credit.
1. Make all your payments on time
“Using your student loans to build your credit isn’t always easy, but it is simple: Complete every payment in full, on time,” Ducoff said.
Creditors look at your payment history to determine your creditworthiness. If you’ve missed or made late payments, your credit score will suffer for it. While payments aren’t the only thing affecting your credit score, they’re the largest determining factor.
If you find yourself running late on payments, it’s time to make a plan.
“It’s important to know your capacity, both financially and personally, to make on-time payments every month, and then to set a system that will prevent you from ever missing a due date,” Ducoff said.
Missing payments can hit your credit report hard. Late payments will stay on your credit report for up to seven years. If you had a late payment put on your credit report today, it wouldn’t go away until 2025. Plus, the more payments you miss, the more delinquency marks you get on your report, which means the more your score plummets.
To help keep your payments on track, use autopay through your loan servicer. It deducts payments from your bank account each month. You can also set calendar reminders to make sure you submit your monthly payments.
2. Make your payments affordable or get help
If your payments are overwhelming and you struggle to make them each month, you might periodically skip one or two. But remember rule No. 1: Always make on-time payments.
So what should you do if you can’t afford your payments?
Talk to your loan servicer and see what options are available for your situation. You might be eligible for an income-driven repayment plan or deferment until you get back on your feet.
“If you find yourself in a tough spot and cannot make a due date, you should contact your lender right away to discuss payment options,” Ducoff said. “Lenders don’t want you to become a credit risk; they have incentives to work with you to find a repayment plan that you’ll be able to meet.”
Ducoff warned that waiting past even one missed payment could mean interest starts piling up. That would make it harder to regain control of your payments. You might be eligible for deferment or forbearance, where you can temporarily pause payments without hurting your credit.
3. Consider student loan refinancing
Keeping your student loans in good standing is a great way to build credit. But managing multiple loans can be overwhelming.
If you want to make your loans more manageable, you could consider student loan refinancing. Refinancing means you’ll make one loan payment rather than many different ones. If you qualify, you could save by reducing your interest payments.
Refinancing can help keep your payments on track. That’ll help you build good credit.
Use your student loan debt to build credit
Student loans can play a positive role in building good credit, as long as your payments are manageable and you keep up with them.
Doing so can help you in other areas of your life. With good credit, you might be eligible for other credit-building incentives, such as lower rates on a mortgage or car loan.
Paying off your student loans might seem daunting, but doing it the right way will help build your credit and your financial future.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.48% – 6.25%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|