Are you aware of the adverse impact of student loan on your credit score? The peculiarity of student loan is that it scores down your credit point though you have not defaulted on payment and just obtained the fund. The effect is so spontaneous that there is no scope of enjoying better interest rate. 750 point is considered favorable to take advantage of lower interest rate but student loan pulls down the score to 500 or below, thereby leaving you no chance to take advantage of favorable interest rate. As a result, a chunk of your money is drifted towards interest payment that is quite a heavy sum to bear.
The question is why student loan inflicts so harsh impact on one’s credit ranking. To understand this point, you need to know the complexities involved in student loan transaction.
Exaggeration of Truth
Yes, that is a common case in student loan borrowing. The amount recorded in the credit report sheet is the triplicate of actual sum you borrowed. For example, if you have taken out $6000 as student loan, it will be entered as $18000 in your credit report. This false statement exacerbates your case not only in terms of drop in credit point but also through the hike in interest rate on principal.
Early Payment Lowers Score
It is hard to believe that early payment negatively impacts one’s credit score instead of pushing it up. But that is the oddity about student loan. The point is the lenders don’t want to lose additional interest rate and never want the borrowers to payback before due date of payment. If you pay off before the scheduled period of time, the creditors might send an unfavorable report to the credit agencies and that will result into further drop in your credit rank.
Long Time of Repayment Drops Your Score
The usual period of repayment for student loan is minimum ten years. Such a long time span induces an unfavorable impact on your credit report. Though the repayment term is agreed by both the parties, still the credit report mentions ‘too long to pay back a debt’ which adversely affects your credit history. Another disadvantage is even a single student loan may be recorded in such a way that equates with seven different types of borrowing. This also scales down your credit point.
A Way Out….
In spite of what may be said against student loan borrowing, it is a good pipeline of monetary resources for those who need support to afford higher education expenses. A good way to evade the negative impacts is to opt for consolidation of all existing loans. When the outstanding dues are combined, regular interest payment is reduced to much an affordable border.
Contact an experienced loan counselor. You can also hire an online service provider to help you with consolidation program. The debt consolidation companies also extend help to those who need to improve their sliding credit score. Following these counter-active tips will help you pay off student loan sooner and at the same time, up your credit point.