Does Student Loan Build Credit Score? All you need to know!

Know how to get your credit scores increased. Understand the role of student loan in building your credit scores. Learn about a better way to build a good credit history.

Updated by Kanishkar P on 14th February 2020

Building up your credit scores will help you get loans at lower interest rates and with maximum benefits. Regular and on-time payments towards your student loans can fetch you good credit scores. Many borrowers build their credit history by means of their student loans. A student loan is the longest line of credit for many borrowers. There are even other ways to build your credit scores, that you will know from this article.

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What if I don’t need a student loan?

If your financial requirements for your college are covered up by grants, scholarships or by your parents, then you don’t need a student loan. Do not borrow a student loan if it’s not needed. Taking out a student loan just for building your credit score is not a wide financial move. It may be extremely risky also. It would also be expensive for it to have any benefit. Instead, you can look into other ways of building a good credit history.

Is it too risky?

Student loans are expensive and risky.

Student loans are really expensive because of the interests to be paid along with the principal amount. When you take loans, interest starts accumulating right from the first day. Even though you won’t have a bill until you are done with school, your balance is still growing. You have to make payments towards your student loans every month without fail. You can build or increase your credit scores through your student loans only if you are capable of making regular, timely and full payments. If you fail to do so, you may end up lowering your credit scores or even get a negative score which is even worse.  When you start repayment, the vast majority of the payment goes to interest with a small portion reducing your principal balance.

Student loan debt is considered to be one of the most dangerous forms of debt because of the bankruptcy rules. Student loans are treated quite differently in cases of bankruptcy. Bankruptcy can help you when you have credit card debts or mortgage debt. It also helps you when you are into financial hardships. It is often a difficult path, but regardless of financial circumstances, you can get a fresh start.  Discharging in a bankruptcy proceeding is nearly impossible but there are a few chances.

A better way to build your credit score

As a student, you may think student loans are the only way to build your credit scores. But there are other better ways. One of the better ways to build a good credit history is to get a credit card. The best thing you can do to get a good credit score is to get a credit card. While getting it, choose the one with no annual premium and. Look out for a credit card that can offer you maximum benefits so that you can save money. Having a credit card means that you will be paying off your balance in full every month. Paying the credit card balances in full and on time will help you avoid paying interest on the balance and also fetches you a good credit score. This first credit card will become the oldest line of credit. As long as you have that credit card your credit score gets building on it. Unlike a student loan, paying off your credit card balance does not erase it from your credit report, because the line of credit is still open.

Your Credit score will be evaluated based on credit utilization. To keep your credits at a good standard make sure you don’t use up the entire availability on your credit card. Using a little less than what is available will help you improve your credit scores. These benefits are applicable only on credit cards and not on debit cards or any other cards.

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Concluding thoughts

Student Loans can help you increase your credit scores, but you are highly recommended not to take student loans just to get good credit scores. Taking student loans should have an actual and strong reason behind it. However, a credit card can improve your credit score at no cost to you, and it will do more to help your credit score than a student loan.