How Student Loans Affect A Credit Score

credit damageThe average graduate leaves the commencement stage with $25,000 or more each semester. While student loan debt delinquency rates continue to rise with each passing month, the economic impact is becoming a more real problem. Many graduates are finding themselves unable to buy a car or house because they are saddled with student loan debt. Is this because of limited income or an impact to their credit profile at the hands of massive monthly payments?

It’s Complicated

The lending market hindered by student loan debt burdens is not a clear cut situation. While some borrowers may find they cannot afford another payment monthly, others are ok income-wise, but have suffered credit damage at their student loan debt payment history. However, student loan debts don’t have to work against you; they can actually work for your credit profile.

Like any other form of unsecured debt, a student loan debt can be an asset or an enemy. The difference is how you handle it. Making timely payments shows you are a responsible borrower that meets your debt obligations.  Continuing a steady payment history can demonstrate your low risk for borrowing and chip away at your debt to lower you overall debt-to-income ratio; something lenders view favorably.

If you find yourself unable to make a payment, be careful which student loan debt relief solution you choose. Debt settlement and consolidation options can be bad for your credit profile. Instead, ask for a deferment of your payment to suspend or lower payments for a period of time while you get back on track financially. Negotiation lower payments or reduced interest rates with your lender can also bring the relief you need without making a negative mark on your credit profile.

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