How Student Loans Can Affect Your Credit Score

by Roberta Pescow 5. November 2014

Student Loans

College graduation celebrates past accomplishments and upcoming adventures. It’s also the point when paying off student loans becomes a tangible financial obligation rather than a future burden. Once you start paying, you’ll feel the effect on your budget immediately. But what may not be apparent is how this debt affects your credit score, which will have long-term effects on almost all areas of your life.

Establishing Good Credit

When it comes to your credit rating, student loans can be a positive influence. They can be an important building block to establish or burnish your profile as a good financial risk, which in turn helps you obtain credit cards and borrow in other ways. The resulting diversity in your record is an important factor that ultimately boosts your credit score, provided you pay bills on time.

Student loans are considered “good debt” since they represent an investment in your future. How you handle them may be key to getting other financing such as a mortgage or auto loan, which would further build your profile. Dealing with these college-related obligations can boost your credit score, a measure of financial risk used by lenders, compared with peers who didn’t borrow to pay for school.

What if I Can't Make My Payments?

Getting that first job after graduation can be tough, and if you aren’t earning enough, it may be impossible to cover your payments. If this happens to you, don’t panic – you have options to protect your rating.

No matter how overwhelmed you may be, the worst course is doing nothing. Missing a payment by a few days or weeks might not be too damaging, but after 60 days, most lenders will report the loan involved as delinquent to the companies that maintain credit records, and your risk profile will worsen. Letting your loan slip into default will mar your rating and the stain will stay there for seven years.

Deferment and Forbearance

One way to maintain good standing even if you can’t make the payments is to seek a deferment or a forbearance agreement, which puts that obligation on hold. These options won’t harm your credit score and banks might even be more willing to lend you money after you’ve taken such steps.

You may be eligible for a deferment on a federal student loan if you’re unemployed, are enrolled in school at least half-time, are on active military duty during certain periods, or you’re in the Peace Corps. You don’t have to make payments during a deferment, but if you don’t pay the interest it may be added to the principal balance and you may end up paying more. Bear in mind that you’ll need to reach out to the organization handling your loan to request a deferment.

If you don’t qualify for deferment, you may still be able to arrange forbearance with your loan servicer. During the forbearance period of up to 12 months, you won’t have to pay any principal, but you’ll still have to make monthly interest payments.

Forgiveness and Cancellation

If you’ve made 120 consecutive on-time payments on direct federal student loans while working full-time in government or tax-exempt not-for-profit organizations, you may be able to erase the remaining debt. Designed to promote such careers, the Public Service Loan Forgiveness Program (PSLF) can be used to cancel or discharge qualifying school debts. These actions won’t negatively affect your credit score.

Repairing the Damage

Even those who’ve defaulted, usually by not paying for nine months or more, still have some options to repair the damage. Once regular payments begin, the default remains on your credit report for at least seven years. Once you get the account current, your rating will start to improve, sometimes within weeks.

Once you’ve made an agreed-upon number of on-time payments to the U.S. Education Department and the loan has been sold to a lender, it can be rehabilitated and the default status can be removed.

If you find yourself in trouble with student loan payments, be sure to contact your lender or loan servicer right away to make arrangements that will preserve your good credit.

Roberta Pescow writes about personal finance, insurance and banking for NerdWallet. She previously was a home and garden writer for IdealHomeGarden.com and has articles syndicated on over 200 websites nationwide.

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Is It Good Debt or Bad Debt?

by Spencer Tierney 29. October 2014

Empty Wallet

Most people borrow money at some point in their lives, but many may not realize that having the right kind of debt – and paying it off as promised – can show money management smarts rather than poor spending habits. Here’s how to sort the good from the bad when it comes to owing money.

What is good debt?

Think of good debt as an essential element to making substantial purchases you can’t otherwise afford now but should help you produce value later, such as paying for college or a major business expense. In the long term, this borrowing is worthwhile because of its anticipated future benefits. Here are some more examples:

Mortgages
A mortgage is a necessary debt for most people who want to own their own home. It’s considered smart debt because a house will likely appreciate in value at a faster rate than the interest on the loan. Additionally, the interest paid on a mortgage is usually deductible from income for federal tax purposes, which effectively reduces the cost.

Borrowing for Business
Financing a business with a commercial loan is smart because it probably will generate increased value for the operation. The money needs to be used to improve products and services offered, or in other ways that will grow the company.

Student Loans
Paying for an education is one of the best ways to invest in yourself. Taking out loans is considered good debt on the assumption it will produce a lifetime of benefits by equipping you to qualify for better jobs that result in higher income. But make sure to not borrow too much.

What is bad debt?

Bad debt, on the other hand, doesn’t increase your wealth over time and often comes with a high interest rate. It’s the type of borrowing frequently used to pay for things you don’t really need. Some examples of bad debt are:

High-Interest Credit Cards
Credit card balances and the resulting interest are considered bad debt because there’s no anticipated gain. In fact, if balances mount too high or interest rates rise, it can quickly turn into a vortex of financial difficulties.

Payday Loans
This form of very short-term borrowing is described as a debt trap by the U.S. Consumer Financial Protection Bureau, partly because of the high fees and the checking account access given to the lender. If you can’t pay right away, the fees can quickly become exorbitant; the average annual percentage rate for a payday loan is about 400% and can run as high as 5,000%. And most people who use them can’t pay them off on time and must refinance repeatedly, according to the government agency. It’s easy to get into a big financial pickle with payday loans, so they are best avoided.

Not every form of debt will fit neatly into “good” or “bad” categories. For example, a car loan may be smart if you get a low interest rate and can pay it off while you still own the vehicle, particularly if having the transportation means you can get a better job. It’s bad debt, though, if the amount borrowed and the interest rate are so high that payments will probably continue long after the car is gone. The key thing to consider is whether the purchase being financed will gain or lose value over the long run.

Spencer Tierney is a staff writer for NerdWallet, where he covers all aspects of personal finance.

If you found this article useful, be sure to check out these related articles:

Consolidating Your Debt: Why It's Important and when to Consider It

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How to Prevent Your Teenager from Distracted Driving for Free - The Drive Safe Mode App

by Erica Starr 15. October 2014

Drive Safe Mode App

Every day, thousands of people are injured or lose their lives to distracted driving. According to the Maryland State Highway Administration Safety Information Database, 231 people lost their lives and 29,050 were injured in distracted driver-involved crashes in 2011 alone. Nationally, distracted driving is a factor in 1 out of 4 vehicle crashes and at any given daylight moment, approximately 660,000 drivers are using cell phones or manipulating electronic devices while driving, a number that has held steady since 2010. (NOPUS)

After seeing the above statistics, the question you should be asking yourself is could YOU or YOUR NEW YOUNG TENNAGE DRIVER be one of them? While the dangers of distracted driving are no secret, the best way to prevent these unsettling stats from increasing is communication and education. Do you talk to your teenagers about the risks of texting and driving? Of course you do…but wouldn’t it be great if there was a way for you to physically prevent your child from taking that call while behind the wheel?

Wait no longer parents.

We present to you... (insert triumphant trumpet music)

The Drive Safe Mode App.

While we’ll be the first ones to tell you that our Mobile Banking App allows you to bank from anywhere at any time, there is one place that we would rather you not…while driving. As a matter of fact, if we could figure out a way to shut down our mobile banking app while you were driving, we would. As it turns out, someone figured it out for us. 1st Mariner Bank has teamed up with FOX Baltimore to help fight the battle against distracted driving by helping to promote the Drive Safe Mode App that is available for both Androids and iPhones. This app was created by a parent concerned with his own addiction to distracted driving. This addiction not only included texting, but also emailing, checking Facebook, browsing the Internet, checking sports scores, playing games and using any and every application on his phone.

Some of the App's features include:

  • Prevents texting, banking, emailing and other distractions while driving.
  • Push alert warnings if shut off while driving.
  • Blocks phone usage within a few seconds of vehicle moving.
  • Configurable to allow calling parents while driving.
  • Configurable to allow navigation apps while driving.
  • Configurable to allow music apps while driving.
  • Ability to deliver speed alerts for your vehicle.
  • Proactive alerting and reporting if user tries to disable.

While the App is is available for both Android and iPhone devices, the features and functionality vary slightly for each operating system. Click here to see a features comparison.

So how does the Drive Safe Mode App actually work? (Hint: You're gonna love this.)

Once a certain MPH is reached, essentially all functions of the phone are disabled except the ability to call 911 and/or any preset emergency phone numbers set up by the account holder (i.e Mom & Dad).

Here is a demo of the Drive Safe Mofe App in action on an iPhone.


What if my child tries to use his or her phone or delete the app? (Hint: Mom will know everything.)

In any instance that one attempts to use any non-emergency functionality of his or her phone or deactivate or delete the app, the account holder will receive a notification via text or email.

Ready to take action?

Download the Drive Safe Mode App on your teenager's phone today.

Want more info?

To see additional FAQs or get more info, check out the Drive Safe Mode site here.



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