How Do You Pay Student Loans By Establishing Good Credit?
November 30, 2012

The list of ways in which student debt can and often does pose a hardship for borrowers is pretty exhaustive. So it’s important be aware of the ways in which your student loans can be used to improve your life. There are quite a few ways that student debt can work to your advantage; one of the most important ones to keep in mind is the way student loan debt affects your credit score. This is an area in which your student loans could really go either way, becoming a help or a hindrance. Keeping the following tips in mind will allow you to let your debt work for you rather than against you.

Make On Time Student Loan Repayments

Okay, this may sound like an obvious one; of course your credit will improve if you can make your payments, right? The challenge lies in how to make them. To do this you need to be on a repayment plan that is appropriate for your career, income level and lifestyle. Remember, there are many different repayment plans available and it’s the borrower’s right to switch repayment plans at any time; you are not stuck with whatever plan you may have carelessly signed up for as a college freshmen (likely a standard repayment plan); you are empowered to choose the best course of action for yourself.

For borrowers struggling to make those on time payments due to income restrictions, Income-Based Repayment might be an excellent way to go, as it can offer extremely low monthly payments, sometimes even $0 per month. The fantastic part here is that no matter how cheap your payments are you can still use your student loan debt to build up your credit score.

Cut Up Your Credit Cards

Credit card debt can really demolish your credit score, especially because it’s a bigger indicator of your credit risk than your student loans are. And if you’ve ever owned a credit card, especially as young person, then you know just how seductive they can be. Simplicity, simplicity, simplicity! You can’t spend more than you have if you don’t have a credit card, pure and simple. Plus, some young people get credit cards just to try to accumulate good credit, but if you’re already strapped because of your student loans, you can simply use your on time repayments described above as your source of good credit, eliminating the temptation of having a credit card.

Stay On Top Of Your Credit Report

Like anything else in life: awareness is key. For example, how many times has an enormous list of terms and conditions appeared in front of you, either on screen or on paper, either on iTunes or at the bank, that you’ve blithely agreed to without actually reading the document? Don’t sign away your rights before you know what you’re agreeing to, it can come back to haunt you. The same thing is true with your credit score; if you keep abreast of how your credit is looking, you won’t be blindsided down the road.

Keeping on top of your student loan payments and understanding which plan will best help you to optimize your debt can be frustratingly complex. There’s no reason to loan wolf it; there are student aid groups who have the expertise to help you manage your debt.