While student debt is debt none-the-less and can typically contribute to a large portion of your overall debt – it is important to identify how exactly this type of debt affects your credit report.
Establishing a credit score is one of the most important steps towards creating a strong credit history. Students in particular, can find themselves in a tough predicament as initially building credit can often prove to be a challenge. A student loan however, can be an effective method of beginning to establish credit.
These loans not only help students afford to pay for and fulfill their post-secondary educational goals – as luck would have it, this type of credit is considered ‘good credit’. Since student loans are reported to all three of the Canadian credit bureaus just as other types of credit are, this type of credit can also help lay the groundwork for a healthy credit report.
The way student loans are devised mean that students can prolong repaying back the loan until they have graduated as well as after they can secure an income. In addition to this payment grace period – students can also apply for loan repayment assistance.
This type of assistance offers the option of extending the repayment of their loan if they are not able to pay it back based on valid reasons. While in this instance student loan borrowers do not need to pay off the principal balance, they are still typically required to pay interest charges along the way.
Other loan repayment arrangements can also mean that loan payment including interest charges can be deferred completely until repayment becomes possible for the borrower. Overall, there are many benefits of student loans that can not be said of other types of credit.
Once employed and able to pay back the loan, there are also flexible payment plans that can enable this debt to be paid back with a high level of success. These payment plans are commonly devised on an income-ratio basis. Again, this student debt will still appear positively on your credit report.
Just like other types of debt however – in the event missed payments occur, this can move a borrower’s credit score in a negative direction. With late payments of 30 days or more, this is typically when an individual’s credit will be adversely affected. The longer these missed payments continue – the more likely it appears that a borrower is heading towards the likelihood of defaulting on their loan. As a result this will unfortunately be negatively reflected in your credit report
A student loan, unless subject to loan forgiveness – is a loan that will be carried until it is completely paid off. For example, if down the line an individual’s finances become unstable to the point where bankruptcy becomes necessary,-sstudent loans are not typically dissolved through this process.
Additionally, while a student loan is technically considered a good credit type, with a high volume of this debt – a lender will determine whether or not they will grant you future credit. Overall, a student loan borrower should continue to pay this debt down as effectively as possible – as this also helps to establish themselves as responsible borrowers in the eyes of all future creditors.
All in all, it is important for all borrowers to keep an eye on their debt-to-income ratio. The reality is that all debt to income ratios will impact a borrowers future credit approval rate. With a mortgage, a car loan, even a business loan a part of their future, it remains even more important to keep a lid on their debt to income ratio – including the student loan debt they have been carrying.
While student debt can certainly be seen as more positive credit than other types of loans, it still remains necessarily to continue to manage this debt in an effective manner. Managing the payments can be a valuable method of starting along the path towards a solid financial future – without the possibility of bad credit entering into the equation.
