Student Loan Debt Consolidation Benefit: Improved Credit Rating

By: Ernesto Maitim

Student loan debt consolidation is defined as the act of combining your various loans into a new loan in an attempt to lessen the amount that you pay every month.??? There are many reasons why students consolidate such as payment incentives and fixed interest rates. However, another popular reason which is just as important for students is the improvement of credit score.

By considering a college loan consolidation, student borrowers benefit not only with some significant savings but can also work on improving their credit rating over time.?? Why improve credit score? It is definitely important to have good credit rating especially if the student enters the world of reality where cars and a house of his own are needed.?

Limit open accounts

Over the student’s life, he might have borrowed a number off loans to pay off all school expenses.? Every loan has its own payback amount, type of payment term and rates of interest.? And as student opened more accounts, the lower will be his credit score.?? Therefore, he must lower the number of open credit lines on his credit report, which can only be possible with a student loan debt consolidation.

Debt-to-Credit Ratio

Credit bureaus have their means of finding out if a student is in debt.? One way is thru the evaluation of the available credit that he actually uses.

For example, if a student has $20,000 available on four credit lines and he owes $4,000, the score will be higher than if you try maxing out on your credit line with a limit of $4,000. Likewise, if a student has a number of loans with maximum used, this definitely has a negative effect on his credit score. Because of this fact, student loan debt consolidation is a great factor in lessening the open accounts that are being used.

Lower monthly payments means higher score

When evaluating a student’s credit score, it is a normal procedure that the amount of the student’s minimum payments every month is always taken into account. Hence, when a student has his own share of loans, all payments are considered as part of his monthly payment responsibility.? On the other hand, with student loan debt consolidation, there is only one payment made, which is normally lower than those of his old multiple loans.

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