Having a student loan will impact a person's future ability to get a loan to buy a car or make any other purchase, so how a person manages a student loan will impact her credit score. Because a person's credit score is one of the most important factors that lenders use to determine whether to approve a loan, it is important for anyone with such debt to understand specifically how his life and credit record can be affected by all factors involved in having student loans on record.
Payment History
For many people, a student loan is the first debt acquired. Because this debt may be the only debt a person has on her credit report, it is vitally important for a person to make payments on a student loan on time. Many student loan programs, including loans from the federal government, allow graduates flexible choices for repayment. A graduate can take advantage of these choices to obtain a student loan payment amount she can afford.
Debt Size
One way that a student loan impacts a credit score to a larger degree than other debts is due to the size of the student loan. Credit scores take into account the total amount of debt that a person has. As many student loans are tens of thousands of dollars, or more, this large debt will impact a person's ratio of debt to income and other factors that both credit scoring companies and lenders will use.
Debt History
Another factor used by the credit scoring companies to determine a person's credit score is the length of credit history. The credit scoring companies look favorably on borrowers who have a long history with one lender. As most graduates pay on student loans for decades, consistently making student loan payments on time will help a person build a solid credit history with the lender, which will result in a higher credit score over time.
Other Factors
Credit scoring companies treat student loans as installment loans. Installment loans do not negatively impact a credit score as much as a revolving loan, such as a credit card. Though the credit score is important, a lender will also look at other factors when determining whether to approve a car loan. One factor that a lender will consider is the ratio of the amount of the student loan payment to a person's take-home pay. The lender will want to make certain that the borrower can afford the student loan and other existing payments as well as the new payment on the car loan.
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