How Student Loans can Pull-Down Your Credit Score
A glimpse into student loans and how they can affect your credit score.
Some people born with a spoon up their mouths often coast through the school part because they know where to get the money to go to school. Some people may not have the money but can easily go through school with their smarts, as they earn their scholarships with their intellects. Even the jocks have it easy with athletic scholarships. Where do normal people like you and me get the money to go to college?
Getting through college through student loans however will leave you in debt can however wreak havoc on your credit score. It is important to find ways to counteract these effects because now that you are working you need a good credit score.
One of the reasons a person can get a bad credit score is because as you go through college, people will get multiple loans from multiple lenders. FICO’s computation of credit scores frown upon a long list of open lenders.
With a long list of lenders, a credit report will also show that there are also multiple payments that are lower in amount. A person can get a higher credit score by making just one large payment instead of several small payments. Hence, multiple student loan credit lines can pull your credit score down.
Another way having several student loans can adversely affect your credit score is by messing with a person’s debt to credit ratio. Debt to credit ratio is the amount of debt compared to the available credit line offered. Having multiple lines of credit will give you accounts that are high in debt. Some are close to the credit limit and others will have lower debt to credit ratio as you pay it off but the maxed out account will have higher weight placed on them during computation.
The student loans do have some disadvantages to it but overall it is a good tool to get you through college. Use them wisely and pay them off as fast as you can and you can possibly rescue your credit score. At least, now you know how it works and knowing is the first step to success.
So before you take any more student loans, review everything you already have.
Category: Consolidate Student Loans
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