Posted July 14, 2014 by Chris Warren in News

Turning Student Debt Into Good Credit

CardFlex’s Student Prepaid Debit Card Are Providing Universities and Students with Both Financial & Facility Security
CardFlex’s Student Prepaid Debit Card Are Providing Universities and Students with Both Financial & Facility Security

There’s just no escaping the fact that a mountain of student debt is a big burden. And these days, kids fresh out of college are looking at a Himalayas-like amount of debt to pay off before they’ve even started their careers. According to a recent story in US News & World Report, college kids owe an average of $33,000 from the moment they grab their diplomas and stride into adulthood.

But in that same story reporter Divya Raghavan offers up a way grads can make lemonade out of that forest of lemons. How? By responsibly paying off all of that student debt and showing lenders that you know how to handle your finances responsibly. Doing so is a way to build the kind of credit score and credit history every adult needs. “They can result in a graduate being able to qualify for his or her first apartment, first car loan and, very often, first unsecured credit card,” writes Raghavan.

As Raghavan points out, there’s nothing particularly magical about how this all works. In simple terms, a large amount of student debt can only be paid off with diligent and persistent hard work. Which means that if a fresh graduate makes on-time payments month after month creditors are going to get the message that this young adult is someone who can be trusted with a car loan, mortgage or credit card. Lenders will know that a former student is low risk because student loan payments are reported to the three major credit bureaus, TransUnion, Experian and Equifax. The credit score and report that these agencies come up with is based on how timely and complete those repayments are.

And their impact goes beyond just how likely you are to get a car loan. There are times when prospective employers will ask applicants for their credit report. Although employers can only review a potential hire’s credit report with the consent of a job applicant, it’s important to be aware of the possibility of a request. In fact, a study by the Society for Human Resource Management found that almost half of employers conducted a credit check on potential employers.

There are times when even the most well-meaning and responsible graduate just can’t make those loan repayments. When that is the case, Raghavan writes that the best approach is to defer the loans. Defaulting on the debt will do lasting harm to your credit score. “As a good rule of thumb, remember that it’s OK to defer, but not to default,” she writes.






Chris Warren