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Langley, British Columbia
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Can Student Debt Harm Your Good Credit?

Did you know that your student debt can affect your credit score?

We hear a lot about credit scores these days. There are free apps that let you check your credit score and advice on how to improve your credit score. But why is keeping tabs on your credit score important for those Canadians who have student debt?

First of all, what is a credit score?

In the simplest terms, a credit score measures how you manage your credit. It’s a snapshot of your financial health, based on your history of borrowing and debt repayment.

Canadians, as a whole, have become relatively comfortable with consumer debt. Dealing with ongoing debt, making payments and borrowing has become a natural part of our financial culture.

But your credit score can be touchy. Yes, it measures your student debt load. But it captures all the types of credit you’ve had (or have), like credit cards, vehicle loans, payday loans, or credit lines, along with your account history.

Your credit score reviews if you carry a balance over month to month, if you’ve ever missed or been late on a payment, and if you make minimum payments, or pay in full. Outstanding debts, and whether you’ve had collection or bankruptcy record is all noted.

Your credit score helps lenders, credit card companies, leasing agencies, insurance companies and the like determine if you’re a good credit risk.

How does your student debt affect your credit score?

How you handle your student debt will impact your score.

Sometimes, borrowers assume their score is good — or very good — because they haven’t had any formal debt repayment problems or needed solutions, like a consumer proposal or bankruptcy. But a late payment, a missed payment, or a lengthy loan may also lower your score.

The average Canadian manages various types of bills and multiple payment dates month to month. It can be easy to make a simple mistake like a missed or late payment.

Let’s say that an unexpected expense or emergency arises. You may make the decision to skip a payment meant for your student loan to cover the costs. People sometimes make the mistake of thinking that they can “make up” the missed payment later on without there being any negative affect.

Why is it important to pay down your student debt efficiently?

The best way to keep your credit score healthy is to pay your student loan back as quickly as possible without being late or missing any payments.

If you think you’re going to have trouble making a payment, look at your options. Some lenders will allow you to skip or push back a payment. Canada Student Loans has a Repayment Assistance Plan (RAP) that you can apply for.

If you’ve been affected by the 2017 forest fires in B.C., you can have your RAP application fast-tracked.

A recent BDO poll revealed that, on average, Canadian grads under 40 who still have student debt owe over $16,000. Many believe they’ll be paying off their loans for several years — almost 20 per cent think it will take as long as 10 to 20 more years.

If you have student debt, it will impact your credit score for as long as it takes you to pay it off. Make sure you have a plan to keep it healthy.

Is student debt threatening your credit score? Tells us on Twitter. #DebtSolutions, #StudentDebt, #StudentLoanDebt



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