If you’re a student, you know that getting a loan for college is no easy feat. You have to plan ahead, get good grades and probably even work while in school. But that isn’t all: One of the biggest challenges facing students today is managing their finances. And one of the biggest struggles with managing your finances? Bad credit.
Student Loans and Credit Scores
Student loans are different from other types of debt, and they can be discharged in bankruptcy. However, this is not always the case. While Federal student loans cannot be discharged in bankruptcy, state-sponsored and private student loans can be discharged.
When you apply for a loan (including a mortgage), your credit score is used to determine whether or not you’ll get approved for that loan. Student loans are one type of debt that isn’t reported on your credit report when you take out the loan—they’re only reported after you leave school or drop below half-time status (depending on the institution).
You can also refinance student loans with bad credit. “You could take your time to improve your credit score before you think of student loan refinancing,” explains Lantern by SoFi experts.
Cost of Bad Credit
Even if you have a good credit score, your student loans may have other costs associated with them. For example, even though you are responsible for paying off the loan in installments over time and interest rates can vary from loan to loan, there are still fees associated with most student loans.
These fees include deferment (a period during which payments are temporarily delayed), forbearance (a period during which payment is postponed), and consolidation (combining multiple debts into one).
How to Improve Your Credit Score
You can improve your credit score by doing the following:
- Pay your bills on time. This is the most important factor of your credit score and will make up 35% of it.
- Keep your credit card balances low compared to the limit offered to you by the bank or lender. If you have a $500 monthly limit, keeping your balance below $200 will be better than keeping it at $50 or less, which can hurt more than help if it’s too low!
- Use credit cards for everyday purchases and pay them off in full every month so that payments are made without interest charges building up over time.
- Avoid opening new accounts when possible (except perhaps one secured card). That way, lenders can see that there’s not a lot of activity happening with any particular bank – which means less risk for them!
Managing Your Student Loan Payments
When you get a student loan, you need to make sure that the payments are being made on time. You also need to make sure that your payment is for the correct amount. If your lender doesn’t send a bill and asks for money from you every month, then they may not be aware of any changes in your financial situation.
They may keep sending out bills for an amount higher than what you can afford or send them at times when there isn’t enough money in your account for them to cover the cost of the bill.
This can lead to late fees and problems with getting loans into repayment status. If this happens too often, it could cause trouble with getting more federal student aid in the future!
With some planning, you can get back on track with your student loans and start saving money. However, it’s important to remember that many options are available, so be sure to explore them before making any decisions.
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