Repairing Your Credit with Student Loans

Student debt borrowers may take a hit on their credit score at one point or another during their student debt repayment saga. This usually occurs if a borrower is late in making payment or if it looks like a borrower may not be a solid credit risk in the future. Credit is important to achieving numerous financial goals such as buying a car, purchasing a home, or pursuing other accomplishments. However, repairing your credit can be easy if you keep a few things in mind along the way.

During my student debt repayment saga, there was one time when my credit score went down by around 100 points. Ironically, this was right after I paid off all of my student debt, and apparently the lack of open credit accounts made my credit score take a dive. However, I learned that repairing your credit was possible with a few strategies.

Pay Credit Accounts On Time

It may seem obvious, but paying credit accounts on time is an important way of repairing your credit. Making late payments on your debt, or not making payments at all, is the easiest way for your credit to be damaged. This is because late payments or nonpayment could mean that you are a credit risk and you might have difficulty paying your debt in the future.

Paying credit accounts on time is a way to reverse this situation. It might take time for borrowers to have a positive impact on their credit from paying accounts on time. Gradually however, credit will be repaired as payments are submitted on time and creditors report the on-time payments to the credit agencies. Since it could take some time for this strategy to take effect, it is important to begin paying credit accounts on time as soon as possible.

Fix Errors

Another way of repairing credit is to fix errors on your credit report. Although people are generally entitled to look at their credit report once a year for free, few people review their credit reports on a regular basis. However, if you carefully review your credit report, you may notice that there are errors on the report.

Some common errors include credit accounts that are falsely listed as being in default, negative information that belongs to someone else, and other inaccuracies. In many instances, borrowers just need to inform the credit agencies about the error and they will begin the process of correcting any errors on your credit report. Since it can take time for errors to be resolved, it is suggested that borrowers obtain copies of their credit reports regularly and dispute any errors they might find immediately so inaccuracies do not have too much of a negative impact on your credit.

Work With Your Creditors

Another important thing to keep in mind when repairing your credit is that you should be open and transparent with your creditors. Some creditors permit borrowers to defer debt in certain situations and for certain types of loans. This means that during a period of economic hardship, the borrower does not need to make debt payments. It should be noted that normally, interest continues to accrue on such debt, so it is important to think carefully about whether this option is appropriate in your situation.

In other situations, it may be possible to work out a payment plan with your creditor. This would permit you to make payments over time for a balance owed, and possibly for the rest of the life of the loan. If a borrower makes timely payments over the course of a repayment plan or due to a deferment, it is possible that such payments will be positively reflected on your credit report. This can improve your credit since this shows that you are responsible and are working with your creditors to pay off the money that you owe.

Keep Accounts Open

It might seem counterintuitive, but sometimes if you keep credit accounts open, this can help with your credit score. For instance, after I repaid all of my student debt, my credit score went down by nearly 100 points. This was a shock to me since I thought that repaying my debt would show to creditors that I was a good credit risk who paid his bills.

In realty, the formula that credit agencies use to evaluate borrowers does not like it when a borrower has less open accounts. This is because the more accounts that a borrower has had for a long time that remain in good standing, the more likely it is that the borrower will be a good credit risk. As a result, borrowers may not want to completely pay off their student loan accounts and might keep a low balance on the debt. In this way, important accounts will be reflected on your credit report as being in good standing which can go a long way toward repair your credit.

All told, credit scores and the formulas used by credit agencies are somewhat of a mystery, and it is hard to pinpoint all of the strategies that borrowers should follow when repairing their credit. However, if borrowers pay their debt on time, keep accounts open that can reflect positively on their credit, and work with their creditors when they run into trouble, borrowers can maintain a healthy credit score that can be used to achieve a number of financial goals.

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