Building Credit

Building good credit is essential to securing loans down the road. Good credit can help you access financing for a car or a house, and it may even help you land a job. By staying on top of your student loan payments, you'll be protecting your financial future.

Your Credit Report
Student loans affect your credit because they are listed on your personal credit report. Your credit report contains specific information about each of your accounts, including:

• Date you opened it
• Your credit limit
• Balance
• Monthly payment
• Payment patterns over time

When potential lenders view your report, they can see if you've missed payments or made them on time. The information in your report also contributes to your credit rating, which affects your ability to get financing.

Default
If you are 270 days late in making your monthly payments, your loan will goes into default. The consequences of defaulting on your loan are severe:

• The entire balance can become due immediately.
• Your account can be turned over to a collection agency, and you may accrue late fees, collection costs, court costs, and attorney fees.
• Your tax refund can be withheld.
• Your employer can garnish your wages.
• You can lose your deferment options and not be able to secure additional financial aid.

Defaulting on your loan will affect your credit rating, and the default may stay on your credit report for up to 7 years. A default may prevent you from a getting a loan, a credit card, an apartment, and even a job.

Rehabilitating Your Credit
If your loan goes into default, contact your lender immediately to resolve the situation. It's possible to mend your credit after a default, and your lender can help you set up a schedule for reasonable monthly payments. Generally, after you've made nine to twelve on-time payments, the default status will be removed from your loan.

Student Loans and Taxes
In most cases, up to $2,500 of the interest on your student loans may be deductible on your Federal income tax return. There may be limits to the amount you can deduct based on your income and marital status. You can't get the deduction if you're married and filing separately or if you can be claimed as an exemption on anyone else's tax return. Read the eligibility information on Form 1040A or 1040 to see if you qualify for this deduction. For other tax credit information, you can visit the IRS site and look for Tax Benefits for Education.

Credit Maintenance
Making your monthly payments on time is crucial to maintaining good credit. If you have financial difficulties, ask your lender about deferment or forbearance options. You should also monitor your credit by requesting free consumer credit reports from the three major agencies: Equifax, Experian, and TransUnion. By building good credit now, you'll be increasing your financial options for the future.