If you’re a new borrower or a recent college graduate, you might feel anxious about your student loan debt and how it impacts your credit score. Understanding your credit score and how student loans influence it is crucial for your financial well-being. Investing in your education is important, but managing your loans wisely is equally essential. Let’s break it down:
**Understanding Your Credit Score**
Your credit score, often called a FICO score, is a number that lenders use to determine how likely you are to repay your debts. This score considers various factors such as the amount of debt you have, your payment history, any negative marks like evictions or unpaid bills, your debt-to-income ratio, and the length of your credit history. Generally, a higher credit score means you can get better interest rates on loans.
Though multiple credit inquiries can be seen as a negative by lenders, it’s still wise to compare interest rates to save money over the life of your loan. Websites like Achieve Lending let you compare several loan offers quickly without impacting your credit score. Even a small difference in interest rates can save you a significant amount of money, which you could then use for other financial goals like starting a business, saving for retirement, or making a down payment on a home.
**How Student Loans Affect Your Credit Score**
Student loans start influencing your credit score from the moment they’re approved. After graduation, as you start working, the role of these loans becomes even more critical. A large student debt paired with a low income can make it harder for you to get additional credit, like car loans or mortgages, or might result in you having to pay higher interest rates.
**Maintaining Good Credit with Student Loans**
Even though student loans are often considered “good” debt, they still need to be managed carefully. To maintain a good credit score, always strive to make your payments on time. Consider paying off your loan faster or use options like debt consolidation or refinancing to save money in the long run.
Your credit history may seem complicated, but the financial decisions you make early on have a major impact on your future. By investing in your education, you’ve already made a big step financially. Continuing to maintain a good credit relationship is just as important.
Allen Kors, the founder and CEO of Achieve Lending, created a loan search engine to help students find the best education loans. Having worked in finance for six years before launching Achieve Lending at 27, Kors aimed to make the loan process clearer and more understandable, similar to how ‘Kayak’ works for travel bookings. His extensive experience in the finance industry forms the foundation of his mission to aid students in their financial journey.