Pay installment loans on time to build up credit

0

Select’s editorial team works independently to review financial products and write articles that we believe will be useful to our readers. We can receive a commission when you click on links for products from our affiliate partners.

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.

“If you use a few student loans by default, you’ll see how much student loans affect your results,” financial expert John Ulzheimer, formerly at FICO and Equifax, told CNBC Select.

It is important that you repay 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: Autopay.

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.

If you are automating the payment of your student loan, schedule a recurring payment that will automatically withdraw the same amount from your bank account every month on the same day.

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 ™ is a free feature that allows you to add your on-time phone, internet, cable, utilities (gas, electricity, water), and streaming payments like Netflix®, HBO ™, and Hulu ™ to your Experian credit report. According to its website, average users who received a boost reported an increase in their FICO score by more than 10 points.

Bottom line

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 prepare for the January repayment resumption so you don’t risk missing a payment and hurting 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.

Note to editors: Opinions, analysis, reviews or recommendations expressed in this article are solely those of the Select editorial team and have not been reviewed, approved or otherwise endorsed by third parties.

Share.

Leave A Reply