Student loans can have an adverse impact on your credit score. Individuals with a substantial amount of debt may not be able to borrow additional loans since they may be deemed a credit risk who are unable to take on more debt. However, individuals paying off student loans often need to borrow money in order to pay for a car, purchase a home, or complete other transactions. So long as student debt borrowers keep certain things in mind, building credit during student debt repayment is more achievable in a variety of circumstances.
Open Credit Cards
It might seem counterintuitive, but opening credit cards can be a great way at building credit during student debt repayment. As mentioned in prior articles, I did not have a credit card until the end of my student debt repayment saga. I always thought that if I had a credit card, I might be tempted to use it, which would send me down the wrong path while I was trying to be disciplined during student debt repayment.
However, credit cards can help student debt borrowers build credit. By keeping a small balance on credit cards and paying this off completely each month, borrowers can show creditors that they can be responsible with money. Moreover, it is easy to prevent yourself from using credit cards unnecessarily, and my fear about being tempted to spend money with a credit card were largely unfounded. Moreover, if you are truly concerned with overspending because you have a credit card, it is usually possible to impose limits on your spending and not to ask for a credit limit that is too unreasonable based on your income. Since credit cards can be important in an emergency, and can help build your credit, every student debt borrower should consider having a credit card even thought they are trying to save money.
Don’t Miss a Payment
Another important strategy towards building credit during student debt repayment is to never miss a payment or be late with making a payment. Many times in people’s live, they may face life challenges that may make it difficult to pay off student loans. This might include a job loss, a health issue, or anything else that can make it difficult to devote money to student loans to the exclusion of other matters. During these times, it is important to request a forbearance from your student loan lender or servicer so that you are given some relief if you are unable to make a student loan payment for a period of time.
Moreover, individuals may miss a student loan payment by accident at some point or another during their student debt repayment saga. Indeed, borrowers often need to submit payments to multiple lenders and services, and it can be difficult to keep everything straight. Indeed, I missed a payment on a few occasions because I simply forgot to submit the payment. As a result, it is important to stay on top of payments and follow up with your lender if a payment is late to ensure that no derogatory information is reported to the credit bureaus.
Keep Some Accounts Open
One of the ironic aspects of building credit during student loan repayment is that completely paying off student loans can actually hurt your credit score. For many borrowers, student loans are the oldest accounts on an individual’s credit report. When those accounts are closed, this could actually reflect poorly on your credit history. Indeed, my own credit score fell precipitously after I paid off my student loans since my student debt accounts were closed and I could not show that I was current on a vast amount of accounts anymore.
As a result, it might be important to keep some of your student loan accounts open to help your credit score. Of course, if you wish to lower your total monthly student loan amount you may wish to simply pay off a student loan completely. However, if at all possible, it makes sense to leave some accounts open for the benefit of your credit score.
Normal Credit Strategies
Of course, individuals building credit during student debt repayment should follow all of the strategies that are advisable for individuals who wish to improve their credit. For instance, credit inquiries can sometimes impact one’s credit score, especially if the inquiry is deemed to be a “hard pull” by the credit bureaus. Moreover, opening too many credit accounts in a short amount of time may have a negative impact on your credit score. As such, it may be important to spread out when you open credit cards, car loans, and other financing. In addition, it is important to be careful about public records like lawsuits, bankruptcies, and the like because such records may have a negative impact on your credit score. Perhaps more importantly, individuals who think that there may be an error on their credit report should contact the credit bureaus to fix any issues. It is not uncommon for credit reports to have errors and it is important to correct them as soon as possible so this has a smaller impact on your credit.
All told, student debt borrowers may need to use credit even though they have outstanding student loan balances. If you keep some things in mind, building credit during student debt repayment is easy in a number of circumstances.