The same way debt impacts your credit report, Account information, your student loans can affect credit scores, credit reports, and FICO scores,
The credit scores are calculated by factoring in your payment history.
It doesn’t matter whether your loans are still in deferment and you have not started to pay, the total amount you owe will still be considered by your lender. And will eventually have to repay when they feel you are in a good position to take on new debt.
Will Missing a Student Loan Payment Negatively Impact my Credit scores?
What matters most in credit scores is the payment history. Therefore, missing a payment leaves the delinquency on your credit report for seven years.
Companies who give out loans to students often create a separate account for every enrollment period that you attended school, usually each semester.
Even if you make one payment only each month towards the total amount of money you borrowed, you would still see each individual loan in your credit report.
For example, if you apply for a loan in each semester in a four-year study program, you get a new loan, and you would see eight small loans on your credit report — one representing each semester that you took the loans. This can result in multiple delinquencies appearing on your credit report when you miss just one student loan. Therefore, you should always pay up your student loan on time.
What will happen if i Default a federal Student Loan?
There’s insurance coverage by the government on federal student loans. When students default on a federal loan, what the lender needs to do is to file a claim with the government in order to recover the amount due.
However, the loan’s status will now show Government Claim, which is considered derogatory.
Note that the debt is still on you, and the government will open a new account for you to collect the remaining amount to balance up on your debt.
What will happen if i Default a private Student Loan?
Private student loans are different from federal student loans in that they are not backed by the government. So, in the case of loan default, your account may be written off and sold to a collection company. Therefore, the original loan and the collection account will now show on your credit report. This collection account is also considered derogatory.
What if I Miss a Payment?
Once you know that you might miss a payment of your student loan, it is better to contact your lender to explain this before your payment becomes past due. That said, there are credit loan companies that offer payment options for students to help them get back on track and avoid defaulting on their loans.
How student loans can improve your credit
Student loans can help improve your credit score by keeping up with your monthly payments before the due day.
Taking student loans as a young adult can greatly increase the amount of time you have had credit, which will eventually improve your credit score.
For instance, if you obtain a student loan during your first year at college, by the time you graduate, the account will reflect in your account for several years, which will then contribute to the average age of your credit history.
How is Credit Score Calculated?
There are many types of credit scores. In fact, there are hundreds of different types of credit scoring models, but the common one among them is the FICO® score.
A FICO credit score ranges from 300 to 850. While 300 is considered a poor score, 850 represents excellently. A typical credit score is made up of five different sections or categories, and each category contributes a certain percentage to your credit score.