Student loans can pose financial problems as you work to pay off your education debt and hopefully avoid late payments or non-payment of student loans. But while it can take time, money and effort to effectively manage student loans, there are some benefits to school loans.
The most obvious benefit of student loans is that they help you cover the costs of your degree. But paying off a student loan can be beneficial for another important reason as well. Student loan debt can affect your loan in many ways, as well as help you get a loan.
For many young people, student loans are the first debt they take on. Paying them responsibly can help you improve your credit history, improve your financial health, and hopefully earn a favorable FICO score that opens up all kinds of personal finance for you.
Of course, this only works if you have a good understanding of how much you are doing and make all payments on schedule. you can use an online tool like Credible to view a rate table that compares rates from multiple lenders at the same time find suitable loans for you and online student loan refinancing calculator to find out more about the cost of repaying a loan.
What Factors Affect Your Credit Rating?
Your credit rating is determined by five key factors:
- Your history of timely payments
- Average age of your credit accounts
- The mix of loans you have
- Used percentage of available loan
- Number of new recent loan applications
While each of these various criteria is part of a credit rating formula leading to a good, fair, or bad credit history, payment history is the most important factor of all. Of course, you can only start building a positive payment history after you actually owe money to creditors and avoid missed payments afterwards.
Student loans are often the first type of debt available to you, so they represent your first chance to start developing a positive payment history. However, you should be careful not to contact different student loan lenders too often, as too many recent applications can damage your loan.
How Your Credit Score Can Improve After Getting A Student Loan
Student loans have a positive effect on credit ratings by providing an opportunity to take out a loan and start developing your credit history.
Often, lenders will not give student loan borrowers a loan or credit card until they have proven they can handle debt responsibly. This makes it difficult to get a loan the first time. But student loans are easier to obtain than many other types of debt, so they can be the beginning of an improvement in your credit history, which will allow you to earn good points.
You can apply for federal student loans even if you have no credit at all. While the eligibility requirements are stricter for private student loans, many lenders allow you to get approval based on future income and / or through an applicant. Once you are approved, your loan and your payment records will appear on your credit report and used to determine your score.
An online tool like Credible can come in handy for comparison of refinancing rates of student loans from multiple lenders without affecting your credit rating.
Can Refinancing a Student Loan Improve Your Credit Score?
Once you have taken out student loans, the key to building a loan with them is to make sure that you always make your payments on time. Refinancing a student loan can often make this task easier.
Refinancing involves obtaining a new loan and using the proceeds from the new debt to pay off the old student loans in full. Refinancing can sometimes lower your interest rate and also change the loan repayment schedule.
Refinancing often allows you to pay off debt faster or reduce your monthly payment, or both. If you can enable timely payments through refinancing, or can pay off your remaining debt faster, this can improve your credit rating.
Usually, you only want to refinance private loans and not federal loans because you do not want to give up federal loan exemptions. You also need to make sure that you find an affordable new loan with a monthly installment that fits your budget. Use an online tool like Credible to get prequalified student loan refinancing rates without affecting your credit score…
Have a financial question but don’t know who to contact? Write to a safe money expert at email@example.com and your question can be answered by Credible in our Money Expert column.