Will My Student Loans Affect My Credit Score?
- 25th July 2018
- Posted by: Loanable
- Category: Resources
In the ever changing world we live in today, there are a few things of importance, family, our health, jobs, and also our credit scores.
Credit scores and credit scoring is used in much more than just getting a loan, it is used in determining insurance premiums and policies, and also credit scoring can be used in evaluating job applicants.
There are certain jobs that require the applicant to have good credit.
For many younger people, their first step into the world of credit can be their student loans; loans taken out to fund attending university. And at £9,000 a year for just tuition, and many degrees requiring a full three (3) years of study, those loans can add-up.
However, loans can help in building credit, and a credit score, right?
Not so in the case of student loans. Student loans are not reported to the credit bureaus, so if they are not reported, how do you get credit for them?
Unfortunately you don’t get credit for student loans.
The current repayment system for student loans begins when you earn over £25,000 a year, then after you earn more than £25,000 you pay 9% of your earnings exceeding the £25K threshold towards the loans.
There currently is no way to track and report student loan repayments to the credit bureaus. So that is why you cannot use them to aid in building credit or a credit score.
However, if you were to apply for a mortgage, or some other loan, the lender and application may very well ask if you have any outstanding loans, including student loans.
These loan repayments could then be used in calculating affordability ratios in granting a loan and especially a mortgage.
This begs the question, if I don’t get credit for my student loans with my credit score, as they are not reported, then if I default on them they should not go against me or hurt my credit.
And this may be true in theory, however, it can depend on a few factors.
If you default on your student loans initially they are not going to be reported to any credit agency or credit bureau, however, during the collection process many collection agencies and agents collecting past due and defaulted accounts do report to the credit bureaus.
So you could receive a negative mark by defaulting on student loans.
Currently there is £100 billion in outstanding student loans. That is a lot of loans, and a lot of unreported credit.