How to Build Credit by Paying a Student Loan
Aside from home loans, student loans are one of the largest debts that most consumers will incur in their lifetime. Financing a college education with bank or government funds has become a societal norm. With the rising cost of college tuition and fees nationwide, student loans can grow to tens of thousands of dollars in just a few semesters. One advantage, if any, of students loans is that the timely repayment of the such loans will help your credit score.
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Instructions
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Make timely payments. Late student loan payments will hurt your credit rating. Many student loan programs offer several repayment plans that can make meeting payments easier, based on your personal circumstances. For example, if you anticipate a higher income in the next two years, after you complete graduate school, the graduated repayment plan -- which starts out with smaller payments that increase every two years -- might be an ideal option. Making sure that you can afford your student loan payment is essential to making payments on time.
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Consider making automatic payment arrangements. Making timely student loan payments on a consistent basis will build your credit rating. Once you have chosen a repayment plan that allows you to make affordable loan payments, take every precaution to avoid missing a payment. Many consumers find that payments automatically withdrawn from their bank account on a set date gives them peace of mind and prevents forgotten payments, which will hurt your credit rating.
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Pay your student loans off as soon as possible. Paying your loans in full before the end of the repay term will help your credit rating. Making additional payments throughout the year when you receive a bonus or a tax return, or adding additional funds to each minimum monthly payment, will help you achieve this goal.
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Check your credit report at least once per year. You are entitled to one free credit report each year from the Annual Credit Report website. Analyze your student loan activity on your credit report. Make sure that all timely payments were reported as such. Dispute any payments that were incorrectly reported late by contacting your lender first, then the three credit bureaus: Experian, Equifax and Transunion. Once your student loans have been paid in full, be sure that your credit report reflects that information.
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Tips & Warnings
If you choose to have your student loan payments automatically withdrawn from your bank account, consider adding overdraft protection to that account. In the event that you don't have enough funds in your account to cover the loan payment, this protection could save you nearly 30 dollars in overdraft fees, depending on the lender.
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