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Question:


Do my student loans have any impact on my credit rating?
-BillyGaines


Answer:


Yes. Student loans are like any other type of installment loan, just that in this case you’re borrowing to buy a degree instead of, say, a car. If you fail to keep up payments, your credit score will suffer, but as long as you meet the terms of the loans, it shouldn’t hurt your score, even if the outstanding balance is substantial. A report by Fair Isaac Corp., the company that invented credit scoring (the common term for a credit score, FICO, is an approximate acronym of the company’s name), showed that while student debt is ballooning nationwide, there has been little impact on credit scores. Someone with more than $50,000 in student loan debt, in fact, is more likely to have a good score – between 550 and 749 – than the average person with other kinds of debt. They are less likely than the general population, however, to have excellent credit scores – above 750.

Here is some other information from Fair Isaac on student debt and credit scores. It suggests that your loans won’t hurt you if you repay them in a timely fashion but that you should limit your use of plastic: “It makes no difference to the score if the student loan is backed by the government or a private loan from a lender. Whether a student loan is deferred has no impact. Deferred loans . . . can have a positive, negative or no impact on the score, depending on what other credit information is present. Lastly, it’s important to note that while student loan debt can factor into the FICO score, credit card debt has a larger influence. That’s because we’ve found that credit card indebtedness has a stronger statistical correlation with future borrower performance than installment loan indebtedness.”

-Conrad de Aenlle



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