How Can Student Loans Affect Credit?
For many people, student loans are a necessity to be able to pay for university. Unfortunately, they mean you’ll be in debt after you graduate. Students often wonder how this will affect their credit scores. Will your student loan debt pose a problem when you want to make an expensive purchase (such as to buy a car or house) or if you need to take out loans to start your own business? Here’s what you should know.
Student Loans Are Just Like Any Other Type of Credit
In terms of your credit score, there is no difference between a student loan and any other type of loan. It can both help or hurt your credit score, depending on how you manage your finances. In other words, if you make payments in full and on time every month, your credit score will improve.
On the flip side, if you often pay late or miss payments entirely, you’ll see a negative impact on your credit score. This will mean you receive terms with higher interest rates or may lose your eligibility entirely for loans and credit cards.
Private vs Government Student Loans
There are two main types of student loans: private and government. Which you choose to take out can have an indirect impact on your credit score.
Student loans offered by the federal or provincial government can cover your tuition, textbooks, and living expenses. However, they may not be sufficient to cover all your costs at university because they are needs based.
This means they are determined by factors like your income, whether you’re a full- or part-time student, the type of educational institution you are attending, and your savings. A major benefit of these loans is they don’t accumulate interest while you’re in school and they have a six-month grace period after you graduate.
Typically, students should only turn to private student loans if they need more than they can receive in government student loans. You can take out a student line of credit, personal loan, or bank loan. Since you’ll need to make the payments straight away, you’ll need to have a source of income while you’re studying. For this reason, it’s risky to take out private student loans, since there’s a greater chance you’ll miss a payment.
Understand the Implications
It’s also important to understand the terms of your loan, especially if you have a private student loan, as the terms are often predatory. Defaulting on the loan will have a long-term impact on your credit score. If you’re struggling to make payments, you should also think twice before consolidating your government student loans with a private lender because this could mean you lose out on certain benefits. If you have any concerns, talk to someone in the financial aid office at your school rather than a lender who won’t have your best interests in mind.
To limit the impact student loans have on your credit score, it’s important to keep the amount you borrow to a minimum. This means finding ways to either earn or save money while you’re at university. An important way to do this is to search for affordable rooms for rent. Oshawa students can find a home at 17Hundred. The all-inclusive rent covers all your utilities and WiFi to make budgeting easier. You’ll also have access to the yoga studio and fitness facilities to save on gym membership. Apply for a floor plan that meets your budget and needs.