The biggest student loan mistake happens when the student is between periods of deferment. Student loans can be good for your credit score, and certainly won’t hurt your credit score as long as you pay-as-agreed. However, many students ignore their student loans when they come due. This especially occurs when the student expects to go back to school the following semester, therefore putting the student loans back into deferment.
If this happens, you NEED to make the payments in the interim to avoid major damage to your credit score. If you don’t, these 3 damaging things will happen:
#1 – Late payments will show up on your credit report, which will have an immediate and negative impact on your credit score.
#2 – Late fees and penalties will accrue and get added to the balance-owed. During the period of time in which the payments are due and late, there will be a dramatic drop in your credit score as a result.
#3 – With the added late fees, your “highest balance” on the account will now be above the “high credit limit”. This affects the Debt Ratio aspect of your credit score, which represents 30% of the entire credit score. Learn about this in more detail with this free video. For example, let’s say you had a $3000 student loan that went out of deferment, you didn’t pay it, and $234 of late fees and penalties accrued before it went back into deferment. Your account would have a debt ratio over 100% and would look like this $3234/$3000. Not good. This is the part that hurts your credit score for the long-term, or until you pay down this loan.
For Student Loan help, call 877.927.6864
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