You’ve probably heard of the impact of student loans on your credit score, but what about the impact of a credit score on your ability to borrow as a student?
Building good credit and maintaining financially sound practices are just as important before and during college as after. Borrowers with a on-time payment history debts generally have a higher credit rating, which indicates to lenders that such a borrower is less exposed to the risk of default due to good debt management practices.
Why is your credit score important for student loans? For most federal student aid programs, this is not the case.
Federal student loans are different from most types of loans because your credit is not a factor in getting approved to borrow. Congress agreed decades ago that it was good public policy and in the national interest that Americans and eligible non-citizens have access to higher education, regardless of personal wealth or educational background. credit.
Today, the US government grants student loans based on the most basic eligibility criteria and does not assess the creditworthiness of the borrower except for Parent PLUS Loans.
However, this is not how other loans work. If you want to borrow money from a lender other than the federal government to buy a car or a house or to pay for your education, your credit score determines whether you will receive the money and at what interest rate.
For many students starting or continuing their undergraduate college education later in life, pursuing higher education, or even refinancing outstanding student debt, their credit score can have a direct effect on the cost of borrowing to pay their bills. studies. State, non-profit and private student loan providers will often make decisions based on a student loan applicant’s credit rating. People with the best credit scores will get the best rates.
If you are thinking about pursuing higher education or want to refinance your student loan debt at a lower interest rate, which could save you thousands of dollars in interest charges, you will need to a credit history that demonstrates that you are a responsible borrower – a status indicated by a high credit rating.
If you don’t have a credit history now, don’t despair. You can take small steps to build credit and demonstrate its solvency.
Setting up a bank account is a good place to start. You may also want to get a retail or gasoline credit card, or a secured credit card. A secured credit card requires you to place a refundable security deposit on a card, an amount that becomes your credit limit. Responsible use of such a card makes it easier to approve a conventional credit card – like a retail or gas card – if you need to build or strengthen your credit.
You must pay off your new credit card completely on the due date each month to create credit without paying interest on your purchases.
If you have bad credit, take the necessary steps now to improve your score. It takes time to repair bad credit and boost your credit score, but if you must use private loans to pay for your education, it is important that you get approved with the best possible rate, which may require you to postpone the loan. school until you can improve your credit score.
Your credit score is an indicator of your financial health for those who don’t know you. As a result, it can be considered a factor in getting a rental car, cell phone, or even a job during and after college.
It is recommended that you keep an eye on your credit score by checking it at least once a year. Your bank may offer you credit reports, or you can get a credit report each year for free from the three credit reporting companies: Experian, Equifax, and TransUnion.