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How Loans Impact Your Financial Future
Most students today must borrow money to help finance their undergraduate and graduate studies. Some loan programs are federally sponsored, while other loans are provided by banks and other private lenders.
Whatever the source of funds, your student loans must always be repaid. You should bear in mind that any student loans you are now applying for will become part of your credit history and will also affect your credit score.
Individuals establish their credit history by borrowing money or charging purchases. Typically, anyone who has ever used a credit card issued in his or her own name has established a personal credit history. Financial institutions and major retail stores report their customers’ credit information to national credit bureaus that, in turn, compile the information in the form of a credit report. A credit report is simply a record of every credit card, retail account, student and personal loan, and other credit accounts made or established in your name.
Maintaining a good credit history on education loans is important since it may affect your ability to buy things like a home, a car, or a credit card. Whenever you apply for a loan, your credit report will most likely be reviewed. In reviewing your credit report, the lender is trying to determine your ability and willingness to pay based on your payment history. A good credit record indicates that you are likely to repay the loan for which you are currently applying.
Today most lenders may use a credit score to determine eligibility for a loan. This is a numerical score based on a statistical analysis of the data contained in a credit report. Lenders that use a credit score typically require applicants to meet a minimum score in order to qualify for their loan program.
Although it is often a concern for student borrowers, having multiple education loans and/or a significant amount of education debt does not necessarily mean you will have a poor credit score. People with small or large amounts of education debt can score well, provided they have managed their credit properly. Education loans are a good way for you to establish a positive credit history if you make your payments on time.
To be eligible for education loans from private sources, applicants must demonstrate that they have managed debt responsibly. Unlike most federally sponsored loans that have either no credit requirements or minimal credit criteria, private lenders carefully review credit history to determine eligibility for their loan programs.
YOUR FEDERAL LOAN DATA
Data on federal student loans are reported to credit reporting agencies, so maintaining a good repayment history is integral to protecting your credit worthiness. You can access complete data on your federal student loan history from the National Student Loan Data System (NSLDS).
For your own awareness and protection, you should request a copy of your credit report from a local and/or national credit bureau and review it carefully. Contact the reporting credit bureau and creditor(s) immediately if you discover any inaccuracies. The three major national credit bureaus are:
There are also hundreds of smaller local credit reporting agencies. Telephone numbers for the agencies in your area are located in the Yellow Pages of your phone directory under the listing “Credit Reporting Agencies."