Is Your Student Loan Affecting Your Credit Score?

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Is Your Student Loan Affecting Your Credit Score?

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When it comes to your credit score, large debt is generally considered bad. And since a student loan is probably one of the largest amounts you owe, it’s natural to wonder how it will affect your credit.

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However, you don’t have to worry and here’s why.

Your student loan does not appear on your credit report

Yes that’s right. If you have a student loan in the UK, it will not appear on your credit report. So if you apply for a credit card, loan or mortgage and the financial services company does a credit check on you, your student loan will not come into the picture. Hoera!

However, some financial service providers may ask you specifically whether or not you have a student loan. Providers will want to include it as a factor in an affordability check.

Does your loan affect your ability to borrow?

As I mentioned, some providers may specifically ask if you have a student loan. Lenders consider many factors when assessing whether or not to approve a loan application. One way they do this is by looking at your credit report. But they also look at your income and expenses and how much you can afford to pay back each month.

This is where your student loan can become a factor. If you earn more than the threshold and you repay your student loan, it affects your disposable income. The amount of your repayment depends on how much you earn. The more you earn, the more you pay. The repayment is calculated as a percentage of all income above the threshold.

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This will probably only be considered if you want to borrow a larger amount, such as a mortgage. However, since your student loan repayments are made automatically through the tax system, it is likely that you are already basing your monthly budget on the repayment of your loan. Essentially, it is not an additional payment that you have to make with the money available to you.

What else can affect your credit score?

The top things that can affect your credit score are missed payments, large amounts of unpaid debt, or things like exceeding your credit line. It can be all too easy to make purchases on your credit card or maximize your overdraft, but these are all things that will likely count against you in your credit report.

With your credit card, be sure to make your monthly minimum payments as any missed payments will leave a mark on your record. Also try to pay off your balance in full every month to avoid falling into a black hole with interest.

Also, when standing over, try to use only a pre-arranged red standing. Using an unauthorized overdraft facility may incur charges and may also appear on your credit report.

Your credit report shows how much you currently owe and therefore how much credit you have at your disposal. If you want to have a good credit score, start paying off your credit card, loan, and overdraft debts as soon as you can. These should be prioritized even if you find yourself with some extra cash and considering overpaying your student loan.

How These 5 Credit Card ‘Must-Knows’ Can Help You…

We all know that a bad credit history makes it difficult to borrow money – but did you know that improving your credit score can also help you get lower interest rates on credit cards, saving you hard-earned cash?

Find out how to improve your credit score and your chances of applying for credit with our free report “5 things to know before applying for a credit card”.

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