Pay installment loans on time to build up credit
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The idea that your student loans have little impact on your credit score is a common myth.
The two accounts that appear regularly in credit reports are the installment loan and the revolving loan. Student loans – in addition to car loans, personal loans, and mortgages – are considered installment loans and count towards your creditworthiness.
Because of this, it is important not to miss any payment. Your payment history (whether you pay on time or late) is the single most important factor in determining your creditworthiness and makes up more than a third (35%) of your FICO score calculation.
âIf you have a few student loans by default, you will see how much student loans affect your score,â financial expert John Ulzheimer, formerly owned by FICO and Equifax, announces CNBC Select.
It is important that you pay your installment loans on time each month. This can help you build credit and guide you on your way to good credit.
Do you think you will have trouble remembering to pay off your loans by the due date each month? Below we share a universal tip that many use to keep track of this monthly financial task.
A helpful tip for paying your student loan on time
If you’re struggling to remember to pay your student loans (or really all of your bills) every month, there is a simple solution: pay automatically.
To build good credit, you need to pay all of your bills on time, not just student loans, but your credit cards, utilities, and medical bills as well. With so many different due dates to remember, automating payments can help ensure your bills get paid on time every time.
When you automate the payment of your student loan, schedule a recurring payment that will automatically withdraw the same amount from your bank account on the same day each month.
Some student loan companies encourage you to pay on time by giving you a discount on your interest rate when you set up automatic payment.
Here’s how your bill payments can help you improve your credit score: Experian Boost â¢ is a free feature that allows you to add your on-time phone, internet, cable, utilities (gas, electricity, water), and streaming payments like NetflixÂ®, HBO â¢, and Hulu â¢ to your Experian credit report. According to its website, average users who received a boost reported an increase in their FICO score of more than 10 points.
There’s a good chance you took a break from paying your federal student loans during the pandemic, thanks to the interest-subsidy program that has been in place since the CARES bill was passed in March. But now is a good time to do so Prepare for the repayment to resume in January so you don’t risk missing a payment and affecting your score.
Those monthly student loan payments can be a burden, but setting up Autopay means you can all but forget about them and focus on more interesting personal financial goals, such as: B. Saving for a much-needed vacation.
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