Does Student Loan go on one’s Credit Score?

Student loans are installment loans which means that you pay a certain amount over a fixed period of time. It affects your credit history like an installment loan; pay your loan EMIs consistently and your credit score keeps building, miss a payment and end up with a low score. However, student loans come with the liberty of a few extra months to complete the payment before you are reported late.

So, when you make timely payments, your lender sends the details to bureaus which establish your track record. You can take a look at these details on your CRIF Personal Credit Report once a year for free! Keep in mind that the student loan affects the credit score of the one who takes it up. If your parents take up the loan, their credit score will get affected every time the loan EMI is paid in time and every time it is not. A good score, however, will always be a plus point.

Related Reads: Educating Myself for My Education Loan

What happens if you pay late?
Sometimes you may get delayed on the loan EMI payments due to a financial crunch or it could simply skipped your mind. These are the usual slippages which the banks also take into consideration. But your score won get affected till your bank reports your late payment to the bureaus.

Some student loans extend a levy of 90 days while some report it within 30 days of missing a payment. Once this is reported, the entry remains on your credit report for 7 years. Despite not affecting your credit score right away, you missing a payment can be slightly expensive as banks start charging late fee as soon as you miss a payment.

Cannot pay the student loan? What do you do now?
It often happens that money falls short due to sudden expenses and in such cases, there are a few ways to reduce your monthly loan EMI amount or pause it till you sort things out. You can either sign-up for an income driven repayment plan which would basically set monthly payments of 10% to 20% of your monthly income. It can also be changed annually.

Another way to go about this issue is to apply for a modified payment plan which offers you flexible repayment options or you can decide to defer your loan which would pause your monthly payments. If you change your loan repayments in time then your credit score won’t get hurt. Just ensure that you pay the agreed-upon loan EMI each month.

How will refinancing affect my credit score?
Interest rates and repayment policies undergo changes whenever needed, in such a scenario, you can choose to refinance your loan. This means that you pick up another loan with policies and terms suitable to your needs with which you clear off the previous loan and move on to repay the new loan EMIs.

Every loan-related inquiry made on your credit score is a hard inquiry. This means that every time a bank runs this enquiry on your report, you lose a few points on your credit score. To avoid this, you can make sure that you apply for all the loans you are considering within a period of 14 to 45 days. All these will count as a single inquiry having only a single impact on your credit score.

Planning to pick up a student loan is a big step in anyone’s life, be it a parent or the students themselves. Ensure that you have emergency funds in place to repay it and have the right knowledge to take action.