When it comes to your credit score, large amounts of debt are typically seen as bad. And with a student loan likely to be one of the largest amounts of money you owe, it is natural to wonder how it will impact your credit rating.
However, there is no need to worry and here is why.
Your student loan doesn’t appear on your credit report
Yep, that’s right. If you have a student loan in the UK, it will not appear on your credit report. So, when you are applying for a credit card, loan or mortgage and the financial provider runs a credit check on you, your student loan will not make an appearance. Hooray!
However, some financial providers may specifically ask you whether or not you have a student loan. This is because providers will want to include it as a factor in an affordability check.
Will your loan impact your ability to borrow?
As I have mentioned, some providers may specifically ask if you have a student loan. Lenders consider many factors when assessing whether to approve an application for borrowing. One way they do this is to look at your credit report. But they will also look at your income and outgoings as well as how much you could afford to repay each month.
This is where your student loan could become a factor. If you are earning above the threshold and are making repayments to your student loan, this will impact how much disposable income you have. The size of your repayments depends on how much you earn. The more you earn, the more you will pay, as repayments are calculated as a percentage of all income above the threshold.
This is likely to only be considered when you are looking to borrow a larger sum of money, such as a mortgage. However, as your student loan repayments are made automatically through the tax system, it is likely that you already base your monthly budget with your loan repayment factored in. Essentially, it’s not an extra payment that you need to make with the money available to you.
What else can impact your credit score?
The main things that can impact your credit score are missed payments, large amounts of unpaid debt or things such as exceeding your credit limit. It can be all too easy to put purchases on your credit card or max out your overdraft, but these are all things that are likely to count against you in your credit report.
With your credit card, make sure you make your monthly minimum payments, as any missed payments will leave a mark on your record. Also, try to pay off your balance in full each month in order to avoid falling into an interest black hole.
Similarly, with overdrafts, try to only use a pre-arranged overdraft. If you use an unarranged overdraft, you may be charged and this could also show up on your credit report.
Your credit report will show how much you currently owe and therefore how much credit you have available to you. If you want to have a good credit score, look to start paying off your credit card, loan and overdraft debts as soon as you are in a position to do so. These should take priority even if you find yourself with a bit of extra money and consider overpaying your student loan.
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