Once you’re approved to receive a loan, you can generally use the money to pay off bills or to pay for products and services that you want.  However, you should be aware that the numbers of loans you have as well as how current the loans are affects your credit score. 

If you recently received word from the United States Department of Education that your Free Application for Federal Student Aid (FAFSA) has been approved and you’ve been awarded a federal student loan like the Stafford, Perkins or PLUS loans, you have reason to celebrate.  After all, you just got word that you’ll have the funding you need to pay for all or part of your college or university tuition.  Of course, you or your parents can also apply for student loans through your local bank and/or other financial services institutions. 

Paying Back Student Loans

Whether you get your loan through the government or a private financial institution, you generally won’t have to start paying the loan back until you graduate with your college or university degree.  An exception applies to the PLUS loan.  These loans, which are generally taken out by parents to help pay for your tuition, must be paid back as soon as they are received.

What you might not be aware of is that your and/or your parents’ credit ratings and credit reports were reviewed by the lenders before the loans were approved, thereby making it that much more important for you to have good credit.  After the date to start paying back your student loans for college or university arrives, make sure that you remain current in your payments.  Avoid submitting electronic or hard copy (e.g. written check) payments one or more days late.  Although several lenders that funded your student loan might give you a five day grace period before they consider your loan late, do your best to make all of your payments on or before the loan due date.

Benefits and Challenges with Student Loans

If you fall behind in your loan payments by 30 or more days, your late payments could get reported to credit reporting agencies of which the three major agencies are Equinox, TransUnion and Experian.  Late student loan payments can impact your credit score by as much as 35 percent.  Owing large amounts of money on loans impacts your credit score by about 30 percent, with the amount of time it takes you to pay off the loan impacting your score by about 15 percent.  Therefore, the sooner you pay off your student loan, the sooner you can improve your credit score.

Keeping good credit scores can also make it easier for you to get approved to lease apartments and condos.  Good scores also help you to get approved for auto loans and mortgages.  And of course, should you decide to return to college or university and get advanced degrees to earn on-the-job promotions and salary increases, having good credit scores will help you to secure additional student loans.

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