Consumer Warning: Protecting Your Cash and College Credit. Part 4: How Student Loans and Credit Card Debt Affect Your Credit Score.

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“It [a student loan] can have a huge impact, both positive and negative, ”said Griffin. “So if you pay a student loan, it’s like getting a car loan or mortgage. So payment on time will show that you are responsible for this debt. This will create a positive payment history and increase your credit score over time. If you do not pay off the loan, it will have the same effect as if you did not pay off the car loan. ”

Student loan debt is an installment debt, which is something you pay regularly, such as your car or mortgage. First, you borrow a large lump sum and then pay it back over time. The annual interest rate is usually much lower than credit card debt. Now the interest rate on student loans is 2.75%.

Compare that to credit card debt, which is revolving debt. You have a credit limit and you can borrow until you reach it. The annual interest rate is much higher than the installment debt. Now the average annual interest rate on a credit card is 16.61%. Good practice is to use credit card calculator to see the real cost of credit card debt. Revolving debt has the greatest impact on your credit rating. This is because credit card debt affects your use of credit… It looks at the amount of credit available to you versus the amount you owe.

Therefore, if you are trying to improve your credit rating, the best rule of thumb is to pay off your credit card first. But you can’t miss out on student loan payments. If you are having trouble paying off federal student loans, there are several options, such as reprieve or patience which allow you to defer your student loan payments when you cannot afford them.

Federal loans also have other programs that can reduce your debt. These programs not available if you have received a private student loan.

The key is building a college credit history without accumulating debt. I told how to do it in Monday Consumer Notice

If you start getting good grades in college, all the dreams you hope to pursue after graduating from college are more likely to come true.

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