Default in Paying Student Loan: How Does It Affect Credit Score?


Fortunately or, unfortunately, credit reports and scores affect us in many walks of our lives. Credit scores play a great role in determining whether you get a home loan, vehicle loan, get  a credit card approved or even be eligible for the student loan or as some call it an educational loan. It is crucial to understand that how your student loan affects your credit standing. Even as a student, it is important to understand the terminologies related to not just loans and debts, but also credit ratings and scores.

A good credit score, between 700 and 800, helps you get good loan deals. This means you get a good chance to negotiate on your interest rates and repayment terms. If you happen to struggle with your student loan payment, it will end you getting loans in the future with bad loan terms.Default payments in your student loan certainly begin to injure your credit score. Missing a payment means violating the legal terms and conditions under your loan agreement between you and your lender.

In case your loan continues to default, the lender might report this to the credit bureaus. Then, your credit score gets the first blow. The effects entirely depend on your credit history and the severity of the situation. A hit in the credit score will make it difficult for you get loans in future. The loans which you need in the future will be ones like the car loan, home loan, personal loan, etc. It affects your financial credibility for a lifetime. Moreover, it takes a long time to get the bad scores rectified. However, in the meanwhile, procuring new loan becomes more expensive and with rigid terms of repayments.

The situation worsens if your defaulting continues. Defaulting a loan calls for serious consequences. Here your credit score is hindered and:

  • Debt collection agencies are brought into the picture.
  • You will be held responsible for payment of all due payments inclusive of collection charges.
  • Tax refunds can be affected
  • You may become ineligible for any government grants
  • Risk of your employer being notified which affects your employment as such
  • Your loan becomes ineligible for forbearance, deferment, and a number of other repayment programs
  • Deferring the payment, any kind of payment leniency and payment concessions will not be applicable.

Consequences of defaulting your student load are grave and impacts directly on your credit score. You can easily prevent this incident. In case of an expected default due to reasons like economic conditions, unemployment or any other matter, please ensure to inform the lender formally.

With all the financial reforms taking place, it is very important to understand, right from the beginning of your career, how important it is to maintain a good credit score. A credit score of 800 plus is the most desirable and advised. All through your life and career, this desirable score facilitates your financial well-being. It is better to begin it well, rather than trying to make it well in the midst.

Updated: November 29, 2016 — 3:34 pm

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