Your credit report contains historical data on your finances with respect to creditors. Money you borrow, money you pay and when–all these go into the report. These are compiled together with the credit reports of other people to generate credit score.
The credit score basically indicates how a person is going to pay bills. Credit scores affect your mortgage, car loan, or credit card application. The higher the credit score, the better. You’ll have a higher chance of getting your mortgage or loan application approved, and you’ll have a good chance of being rewarded with low interest rates.
What to do
Just like, any other loan, your student loan is included in your credit report. Your student loans have an effect, but it’s not necessarily negative. The amount of your loan and how you have been paying will determine that, with the latter having more significance than the former.
For most students, student loans are the first and largest debt they have after leaving school. Instead of thinking of this as a burden, this can be an opportunity to start building up a good credit history that will serve your financial future well.
To achieve this, you should be paying on schedule and at least the full installment amount. If your budget allows, it would be better if you pay more than the minimum payment. Doing this regularly will effectively lower the total interest you’ll be paying for your loan, shortens the duration of your repayment period, and ultimately have a positive effect on your credit report.
A good strategy will be to use the full grace period. If you have a job before the grace period is up, start setting aside at least the minimum payment amount every month. This will enable you to start paying with a big lump sum amount at the start of your repayment. Having this huge first payment will look good on your credit report.
Missing Payments
Don’t fall into the trap of most young professionals who miss payments. This will lead to higher interest and even to defaulting on the loan when the loan amount balloons. If you can’t make the monthly payment, still try to deposit even a small amount just to show that you made an effort. However, make up for this short payment as soon as you can.
Defaulting should never be an option as it will still be reflected on your credit report for up to seven years even after you have paid it in full later on.
