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How To Repair Credit After Student Loan Default In 5 Ways

If you’re looking to repair your credit after student loan default do the following:

This is a time-consuming process. However, after you have begun, your score may quickly improve in a few months.

Here are 5 ideas and methods for recovering credit after a student loan default.

How Student Loan Default Can Damage Your Credit

Student loan default can have a significant negative effect on your credit score.

Your credit score and report will display a bad payment history, making you not trustworthy to lenders and creditors when it comes time to finance a car, apply for a mortgage, or do anything else that requires a check at your credit score.

There are a variety of credit scores, ranging from 300 to 850. The score is calculated by taking into account the following factors:

  • Current debt.
  • Credit usage.
  • Credit history.
  • The kind and number of accounts you have open.
  • Payment history, as well as your credit history, credit utilization, and payment history.

5 Ways To Repair Credit After Student Loan Default

1. Consider Applying For a Secured Credit Card

If you’re trying to rebuild your credit after a student loan default, your credit may have taken a hit as a result of the default.

Secured credit cards are a good option for students with fair or bad credit.

You must first pay a deposit before receiving a credit card equivalent to the amount of the deposit.

The lender will report your payment history to the credit bureaus every month if you pay your bill on time.

As a result, your payment history and credit score will improve.

If you fail to make a payment, your credit will suffer. Your credit score will increase over time if you make an effort to pay your payments on time, every time.

More: How To Go Back To School With Defaulted Student Loans

2. Make On-time Payment of All Your Obligations

If you’re having trouble paying your other expenses, such as your WIFI bill or mortgage, it’s important to sit down and take a serious look at your finances to make sure you’re always on time with your payments.

Your payment history is the most significant factor in your score, at 35%.

If you stick to a budget, you can avoid late payments and further damage your credit score.

How long does it take for late payments to be removed from your credit history? Late payments on your debts can remain on your credit report for up to 7 years.

Consider enrolling in autopay features and keeping track of due dates if you’re going to miss payments.

3. Pay Off Other Debts

Because credit usage accounts for 30% of your credit score, if you have other obligations, such as credit cards or personal loans, your next action after paying off your student loans should be to pay down those balances.

If your credit card rates are significantly higher than your student loan interest rates, you should prioritize paying them off as soon as possible, because paying off the debt with the higher interest rate first will save you the most money over time.

Also, having all of your credit cards maxed up will hurt your credit score.

If you want to improve your credit utilization, consider establishing a new line of credit in addition to paying off your debts without adding any new debt.

You may also like: Should I Consolidate My Student Loans?

4. Get Out of Default

You must first repay your school debts to rebuild your credit.

If you fail on your loan, it may be transferred to collections, and you will be notified by letter.

If you receive one of these letters, the first thing you should do is call the number on the letter to learn more about your choices.

In most cases, you have 3 options in this scenario:

Paying down your student loan in full is the simplest approach to avoid default. Because the typical student loan load is in the tens of thousands of dollars, this is easier said than done.

If you have a family member who can assist you by lending you money at a cheaper interest rate, this might be a viable alternative.

Another alternative is to apply for a loan with a cosigner to pay off your debt and get lower APR rates and terms.

You might be able to come up with a plan with your loan servicer or collection agency to make a series of manageable monthly installments.

Explain that you wish to get out of default but can only pay a specific amount each month when you call.

The benefit of loan rehabilitation is that you will most likely be able to erase the default status from your credit record if you complete your monthly payments on time for that term.

If you have several federal student loans, you may consolidate/refinance them into a single loan, which will count as a payment and get you out of default.

You have 2 options for qualifying for federal student loan consolidation: make 3 on-time payments before applying for the federal Direct Consolidation loan, or apply for an income-driven repayment plan, which will set your monthly payments on the new loan at a percentage of your disposable income to make repayment more affordable.

More: 5 Personal Loans For Students With Bad Credit

5. Apply For a Loan That Will Help You Build Your Credit

A credit-building loan is a form of lender that helps borrowers improve their credit scores.

When you take out a credit-building loan, instead of receiving a flat sum and repaying it with interest over a certain length of time, the money you borrow is stored in an account that you can’t touch until you’ve paid off the debt.

Even if your credit is terrible, however, these sorts of loans are more readily available than normal loans because the lender is taking on a less amount of danger by holding the cash you borrowed.

The lender will notify the three credit bureaus that you are repaying your loan on schedule, which might help you improve your credit score.

You may also like: Can You Use Personal Loans For School?

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