How Badly Will Defaulting On Your Student Loan Affect Your Credit Score?

Newly grads who took out student loans to finance their university or college education are faced with the challenge of paying off their debt.

It’s fairly a tall order given that new grads have to live within their means as they transition into the workforce.

I am assuming that since you are here reading this article, you still have some student loans that need to be paid off.

I’m sure that there are instances when you are faced with some financial challenges that the thought of defaulting on your student loans crossed your mind.

So, what if you do default on your student loan?

How would this affect your credit score?

I won’t beat around the bush regarding this.

Not paying your student loans or making late payments can definitely hurt your credit score.

The real question is up to what extent will it damage your credit score?

According to my sources at FICO Score, even just one missed payment on your student loan can negatively affect your credit score.

Now if you miss making payments for months, this will significantly have a negative impact on your credit score. The main reason behind this is that your payment history is a major factor that affects your credit score.

Missed payments stay on your credit report for seven years. In addition, this will be visible to all lenders.

Now, if you have multiple student loans managed by the same servicer, the effect of a missed payment even on one loan account could affect your other loan accounts. A single missed bill could therefore potentially put your other loans into delinquency or default.

Ouch!

Don’t ask me why. That’s just how these loan servicers do it.

To rub more salt on an open wound, when collection agencies take action to either collect or buy the defaulted loan, this will also show up in your credit history.

These marks will also be on your credit report record for 7 years.

So as you build your life in the aftermath of defaulting on your student loan, getting access to the best rates to buy a car, a house, getting credit cards, or personal loans will tough.

Sometimes, even renting a place could be tough if landlords also check your credit rating.

The best thing to do to avoid all these negative impact on your credit rating and your life is to honor and pay your student loans promptly.

Now, if money is really tight and you feel that servicing your student loan has become a major burden for you, I suggest that you reach out to your student loan servicer and inform them about your situation.

They usually have in-house counselors to help people in need and will give you the best advice on how to best deal with your situation and avoid a default on your loan.

Especially during tough times, you’ll find out that there are a lot of kind people in the world willing to help others in need.