Building Credit

Your long-term financial success depends on building good credit and you can begin while you are in school. Good credit can help you access financing for larger purchases down the line like your dream home, a car, or other large purchases.

Your Personalized Credit Report
Your credit report is a personalized record of your financial behavior, including everything from bank accounts to credit cards to records of loan repayment. Your credit report contains specific information about each of your accounts, including opening dates, credit limits, balances, monthly payments, and even your payment patterns over time.

If you've made a series of late payments, that information could be on your credit report. By using your report, lenders can immediately see if you are responsible with your finances. The information in your report contributes to your overall credit rating, which can directly affect your ability to get financing in the future.

Avoid Credit Default
Your loan may go into default if you are consistently late on monthly payments. The consequences of defaulting on your loan are severe:

• You can lose deferment options and the ability to secure financial aid in the future.
• A collection agency could take charge of your account, and you can accrue extra fees, collection costs, court costs, and attorney fees.
• The Federal government can garnish your wages or apply your Federal tax refund to what you owe.
• The entire balance can become due immediately.

A defaulted loan can negatively affect your credit rating, and that default can remain on your credit report for up to seven years.

Rehabilitating Bad Credit
If you're concerned that you may default on a loan, it's important to contact your lender immediately. If you haven't defaulted yet, you can speak with your lender about deferment and forbearance options. If you've already defaulted, it's still possible to mend your credit, and you can work together with your lender to set up a monthly payment schedule that is reasonable for your financial circumstances. After you've made between nine and twelve months of on-time loan payments, the default status can be removed from your loan and you can get back on track toward good credit.

Student Loans and Your Taxes
You may be able to deduct up to $2,500 of the student loan interest you have paid on your tax return. You won't be eligible for the education deduction if you're married and filing separately, for example, or if you can be claimed as an exemption on someone else's tax return. Read the instructions on your 1040 or 1040A tax forms to see if you qualify for these educational loan interest deductions. For other educational credit information, review the Tax Benefits for Education section on the IRS Web site.

Protecting Your Good Credit
If you're having difficulties with your loan repayment plan, talk to your lender immediately about loan forbearance or deferment options. Staying on top of your credit is important and, even if you feel confident in your financial situation, you should request free credit reports from the three major consumer credit agencies--TransUnion, Equifax, and Experian. Remember that you shouldn't have to pay for a credit report when you can receive one for free. Build good credit now and you'll have more financial power in the future.