Student Loans and Credit Scores
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Those who are working to earn a degree or certification don’t need to be told how expensive higher education is. A recent National Postsecondary Student Aid Study (NPSAS) showed that 55.5% of all undergraduates have to borrow funds in order to pay for their education. This is right in line with studies that show only about half of all students will receive scholarships and grants to help cover costs.
Students in all types of educational programs and learning institutions are finding that the rising cost of education means a rising need for financial aid. In fact, that same NPSAS study showed that between 1993 and 2004 the percentage of students taking out federal student loans for associate degrees jumped from 19.7% to 28.3%. In addition the median amount borrowed more than doubled from $2,625 to $5,879. Today on average 65.7% of college students graduate with some sort of student loan debt.
Intro to Credit and Debt
Though the costs might be occurring now, the repayment of debt will stay with you for years. Many students taking out federal and private loans or using student credit cards to pay for schooling don’t consider the long term affects of using this credit. However, these debts become part of your credit report which affects your entire financial well-being.
Borrowing more than you can afford or not managing your debts properly can quickly lead to debt management issues that will onlylead to more debt and make it that much harder to pay off. While student loans help you achieve higher education, student loan debt can keep you from achieving other important milestones in life. A 2002 Nellie Mae study found that because of student loan debt 14% of graduates delayed getting married, 21% decided to wait longer to have children and 38% forewent buying a home.
All this borrowing has led “unmanageable” debt for 39% of those graduating with loans and credit cards still left to pay off. To avoid falling into the “unmanageable” group there are steps you can take before debt management becomes a problem as well as ways to do damage control if you have to. However, the key for all of these solutions is to first understand how these debts affect your credit.
The Factors Affect Credit Scores
Credit scores are calculated using complex mathematical algorithms and figures from your personal finance information. Though there are a number of ways to measure credit scores the most widely used method is the FICO score. The score, which can run from 300 to 850, is supposed to directly correlate to how likely you are to pay off your debts.
In the U.S. we have 3 credit reporting agencies; TransUnion, Experian and Equifax. These agencies keep records of your credit report which vary slightly depending on the agency. However, they will all have relatively the same score. Consumers can now look at their credit report for free once a year with each of the agencies. It’s important that you make use of this opportunity so that you can ensure your credit report is accurate and up to date. If you do find errors you do have means to dispute the issue with your creditors.
When it comes to your credit score there are 3 main factors that affect whether it will go up or down. There are some things that aren’t actually in your control and others that are.