Student Debt and its Credit Affects
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Amount of Debt
The amount of debt that you owe is a big part of determining your credit score. In fact your debt amount counts for 30% of your scoring. However amounts for different debts carry different meanings.
Breaking Down Your Debt Balance
Creditors look at your aggregate debt which is just a sum total of all your debt balances, the numbers of accounts you have that have a balance and how much of your credit limits you are actually using. Though your aggregate debt is important it’s really how much of your credit line is being kept as a balance that matters most as expressed by the revolving utilization.
Considering that debts like home mortgages and student loans can be very large sums that are paid over an extended period of time, simply using the total of a person’s debt to assess lending risk wouldn’t be accurate. That’s why revolving utilization is also used because this is a better indicator of the type of borrower you’ll most likely be.
Because of free lending problems over the last few years many people have found their debt is more than they can manage. Lenders that did not pay enough heed to the factors that went into credit score calculations has led to borrowers who are overextended. This is when people begin having debt management issues.
To make credit score improvements for the amount of debt you owe there are a few solutions.
First pay down revolving debt like credit cards before other debt like student loans. Next try to increase your credit limits to improve you credit limit to balance ratio. Also, don’t think that you have to pay your revolving credit down to zero when the money might be better used on another debt. Ideally you want to keep this kind of debt to around 25% of your credit limit or less.