For the past three years, federal student loan borrowers got a nice reprieve from having to repay their debt. But now that President Biden's student loan forgiveness plan isn't happening, federal student loan borrowers will need to gear up to start making payments this fall.
If you were hoping to have your student loan debt forgiven, then clearly, this isn't the outcome you wanted. But there's a silver lining to paying your student debt: If you do so in a timely manner, you could raise your credit score quite a bit.
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How student loan payments influence credit scores
There are a number of different factors that go into calculating your credit score, such as how much of your revolving credit card limit you're using at once and how long you've had open credit accounts in good standing. But there's one factor that carries more weight than any other when determining your credit score, and it's your payment history.
Your payment history speaks to how timely you are with your bills. If you pay your credit card or mortgage on time every month, for example, that positive activity gets tacked onto your payment history, leading to a higher score.
Similarly, if you pay your student loans on time and in full every month, it'll be a nod in your favor from a payment history standpoint. And that could lead to a higher credit score, which is something you want.
The higher your credit score, the more likely you are to get approved the next time you seek to borrow money. Also, a higher credit score could lead to a more affordable borrowing rate on whatever loan you're taking out.
Don't fall behind on your student debt
While paying off student loans could help your credit score improve, that'll only happen if you're timely with those debt payments. If you fall behind on your student loan payments, the opposite will happen -- you'll risk damaging your credit score, making it harder to borrow money (or borrow affordably) as that need arises.
If you're worried about being able to keep up with your student loan payments, see if there's a repayment plan that works better than the one you're on now. You may be able to switch over to an extended or income-based repayment plan that results in lower monthly payments than what you're currently looking at.
You have a short period of time between now and when you're required to start making student loan payments again. So take advantage by picking up a side job and socking your extra earnings away. Having cash set aside to cover that debt could make it much easier to keep up with.
Finally, do your best to get on a budget before those student loan payments start coming due. Having a solid handle on your expenses could make it easier to keep up with those payments -- and give your credit score a nice bump that opens the door to more borrowing opportunities.
