Posted on Wednesday, 25th August 2010 by admin
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Each day at some point or another, you would hear the term ‘credit score’. By now you might be sick of hearing it so often but it carries great importance. This is so because the percentage charged on your loan solely depends on your credit scores, thus having a good credit score means lower rate of interest. For instance, if you credit score is above 750 then you’re in a strong position but if your score is less than 650 then that might add to your woes. Having a decent score means you would pay the principle amount quickly and get out of your loan sooner than later.
Now the trick part arises as to what affects your credit score the most? And the answer to this would be your student loan. This bears so much importance because often your student loan is shown in a higher value than the original, almost three times more.
No matter what the category for your loan is, you will be shown the maximum credit, the outstanding balance and the your entire payment history. This works in such a manner that the more you owe, the lower your credit score is and vice versa. Now as far as your student loan is concernced, lets assume that you have taken 000 as loan, this amount would be trippled and shown as 000. This triplication of the amount would majorly affect your credit score and give it a bad hit, pulling it down to a lower level score.
Often most people dont realize this but it goes onto increase the level of interest they have to pay in the end. To understand this further, below some factors are explained.
1. Paying off your student loan earlier than its end date:
It might sound helping but this tactic would not majorly affect your credit score but it would further take down your credit score by 10-15 points. If you’re wondering why this is so, no lender would like their loan to be repaid earlier because that would cut down on their markup. Therefore its a good thing to pay your loan earlier but it would have no impact on the credit score.
2. Student loans with longer time duration would lower your score:
As mentioned earlier, student loans are shown as triple in value compared to their original value. Therefore suppose you are to pay back your loan in 10 years time then this would seriously go onto affect your credit score as 10 years is a long time and with the triplication effect, it would seriously ruin your score.
3. Consolidating your loan would help you improve you score:
Consolidation is a process which would be better explained by your legal advisor. This is a strategy which would help you improve your score as all your loans would be consolidated into one giving your current financial standing a better image, hence helping you improve your score.
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Tags: College Loans, credit history, credit score, Debt, loan, personal finance, Student Loans
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