How Can Student Loan Debt Impact My Credit Report?

Many graduates are unaware that their student loans appear on their credit reports. How you manage your student loans can have a big impact on your credit report, and in turn, your ability to rent an apartment or get hired for a job.

Graduating with student loans can be overwhelming. However, to maintain a healthy credit report, it is essential to educate yourself on the best way to manage your loans. If you are in over your head with debt, you might want to consider contacting a student loan debt settlement attorney.

Can Student Loan Debt Harm My Credit Score?

Student loans fall under the umbrella of installment loans. These involve a formal agreement or contract between a borrower and lender that outlines a set number of scheduled payments over a set time frame. Other examples of installment loans include car loans and mortgages.

This means that credit reporting agencies report on your student loans as they would other installment loans. If you make regular on-time payments on your loans, your credit report will reflect that you are a trusted borrower who can manage their money. When you try to borrow money in the future, a credit report that shows you are a conscientious borrower will make you look more appealing to creditors. Therefore, paying your student loans on-time after graduation can have a positive impact on your credit score.

Conversely, if you don’t pay your student loans and let them fall into collections or default, your credit score will most likely be negatively affected. This, in turn, can make it challenging for you to obtain loans in the future or gain housing and employment—both often require a credit check.

When Student Loans Start to Appear on Your Credit Report

If you are applying for federal student loans, they won’t appear on your credit report until you actually take out the loan. In a lot of cases, a federal loan—on its own—isn’t enough to pay tuition in full. In these cases, students may choose to take out a private loan.

If you are taking out a private loan to pay for college, it’s important to ask your lender for a “soft inquiry.” Both soft and hard inquiries are ways of receiving credit from a lender, but hard inquiries are reflected on your credit report. Too many hard inquiries on your credit report over a short period of time can negatively affect your score and signal a red flag to lenders. Therefore, when shopping around for private loans, you’ll want to ask for a soft inquiry.

Student loans begin to show up on your credit report while you’re still in college. However, they don’t really begin to impact your credit score until after college. While you are completing college, your loans are in deferment, which means the monthly payment is set to zero. So, although the loan balance may be reflected on your credit report, it won’t negatively affect your credit or ability to gain future loans since lenders are more interested in on-time monthly payments. Your student loans truly start to impact your credit score after you graduate and the monthly payments begin.

How Can Student Loans Negatively Impact My Credit Score?

Like all loans, student loans negatively impact your credit when you fail to make on-time regular payments. If you have a federal loan, late payments won’t be reported to the three major credit bureaus until the payment is more than 30 days late. This allows graduates with federal loans a bit of wiggle room to catch up if their missed payment was a mistake or oversight.

Once your loan payment has been delinquent for 270 days, you are generally considered to be in default of your loan. It is really important to try your best to avoid going into default, as a loan default can remain on your credit report for seven years, and the damage can take years to rebuild.

Unlike the government, private lenders don’t have a standardized protocol they follow when it comes to reporting missed payments. Each private lender may have a different way of dealing with late payments. If you have a private student loan, it’s likely your lender won’t wait 90 days to report a missed payment. It’s also likely that they have less forgiving guidelines for default. As soon as your private lender reports missed payments to the credit bureaus, your credit score will start to be affected.

If you are currently in default on your student loans or are struggling to make on-time payments, it’s best to contact a skilled debt settlement attorney.

Contact a Skilled Arizona Student Loan Lawyer

At McCarthy Law, our attorneys are dedicated to helping students pay off their student loans. Under our student loan debt settlement program, our licensed attorneys negotiate with lenders to fight for our clients to pay only a fraction of their original loan balance. To schedule a consultation with one of our skilled student loan settlement attorneys, call (855) 976-5777 or fill out our online contact form.

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Kevin Fallon McCarthy

Kevin Fallon McCarthy is the McCarthy Law PLC’s managing attorney and an experienced Phoenix debt attorney. Mr. McCarthy has also worked as general counsel for a large corporation. He has corporate counsel experience in human resource matters, general corporate governance, and union class action litigation.