Picture this: You’ve just graduated college. You got good grades and have the perfect portfolio, and you’ve sent your application everywhere imaginable. You’re doing everything in your power to start your career. The only thing you’re missing now is the perfect credit score.
Sound familiar? Most post-grads these days are in debt before they even start working in their field of choice. Although it’s not pleasant to think about all that debt, there is a light at the end of the tunnel. In the meantime, it’s time to start thinking about your credit score. If you’re thinking there’s no way you can pay off your student loan and improve your credit at the same time, we’re here to assure you it can be done.
What Is a Credit Score, and Why Is It Important?
A credit score is a number that lenders use to measure how capable a person is of paying back a loan. The number ranges from 300 – 850. A good score is above 670, and a bad score is 580 and below. If you don’t know what your credit score is, signing up at QLCredit.com is a great way to find out.
Credit scores are important not only to lenders but also to employers, landlords and even cell phone companies. So while you might not have been worrying about your score, it might be time to start looking at it. Below, we’ve outlined how you can pay off those pesky student loans while maintaining (or improving) your credit score.
How Do Student Loans Impact My Credit Score?
Unfortunately, most people have to pay back their student loans. The good news is, you can improve your credit score by doing so! Although the silver lining might seem small, it’s actually an important point. Student loans are considered installment debt, and they can improve your score if you pay them on time and in full. However, using your credit card can lead to bad habits that can negatively impact your score, so use your credit card responsibly. Paying for other expenses is a good way to build your credit – but it’s important to pay your balance off in full and on time each month.
If you’re falling behind on your payments, it’s essential to find a way to resolve the issue. Not only will falling behind cost you in late fees, it could also cause long-term damage to your credit score. If you make a late payment on your loan, it will stay on your credit report for two years. Missing payments on your student loans will damage your credit and hurt your ability to qualify for loans in the future (think auto loans and mortgages). One solution is talking to your lender. If you have issues paying, try negotiating payments with your lender. If you have a private loan, they may offer a repayment plan or deferment.
How Can I Start Building Credit?
Now that you know how payments on your student loans can affect your credit score, how do you improve or maintain it? There are plenty of ways to go about it. One of the best ways to improve your score is to start while you’re still in college if you can. Getting a credit card with a lower credit limit can help. Be sure the only purchases you make are those you can afford; making late credit card payments will not only hurt your credit but can also come with hefty fees. If you’re not ready or if you can’t qualify for a credit card, consider becoming an authorized user on a family member’s credit card. Even if you don’t purchase anything on their card, you’ll be building your credit history just by being on it. Although this is a great way to start building your credit, always keep in mind that your family member is going out on a limb to help you. Respect their credit as you would yours.
Another way to start building your credit is to get a secured card. These cards are much like a debit card in that they first require you to deposit money into the account before you can charge anything to it. For example, if you deposited $100 into the account, you could then only charge $100 to it. One drawback to using these secured cards is that, depending on which credit card company you decide to go with, you might have to pay a monthly insurance policy.
One note of caution when thinking about opening new lines of credit: Don’t open too many accounts at once. New accounts can show an increase in risk and lower the age of your credit history, which can affect your score.
If you’re currently renting, you can request to have your rent payments show up on your credit report. Most of the time, rent payments aren’t reported to the credit bureaus, so you won’t get a boost in credit for paying your rent on time. The same goes for on-time payments to cell phone and utilities companies, although late payments will show up. However, you can sign up with a rental payment service such as Rental Kharma that will report your payment history to credit bureaus.
It’s understandable that your credit score might not always be top of mind. After all, looking for a full-time job can sometimes be a full-time job in itself. But it’s important to start thinking about your score. If it isn’t where you’d like it to be, there are easy ways to monitor your credit while keeping up with your student loans, and there are lots of ways to improve your score. Sign up for QLCredit to learn more about your score and ways to improve it. Your future self will thank you for being proactive.
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