Is my credit score affected by my student loan debt? Myths debunked

After years of working your ass off and studying hard, you’ve earnt your degree and are moving into the ‘real-world’. Soon you’ll no doubt be thinking about things such as buying a car to commute to a new job, or even getting a mortgage for your first home.

But if like most, you have tens of thousands of pounds of debt hanging over your head from your student loan, it is completely understandable if you are getting a little concerned about your credit rating and any prospective lenders view of your finances. Indeed – according to a recent study, 80% of students worry about their finances.

Well let’s debunk some myths about student debt shall we?

Will my credit score be damaged by my student loan?

In a word – no. Student loan debt isn’t viewed in the same way as other debts – for example from credit cards. The fact that you have a lot of money to repay on your student loan won’t automatically mean you have a poor credit score.

Student loan debt is also repaid differently to other kinds of debt. Firstly, you will only be required to start repaying your student loan when you earn over 18,935 p.a.

Secondly, repayments are automatically taken out of your pre-tax salary via the PAYE system. This means it is almost impossible for you to miss a repayment. Compare this with a credit card debt, where you are required to manage the repayments yourself, and any missed repayments could negatively impact your credit score.

So will my student loan debt stop prevent me from getting a mortgage?

This is a bit of a different question. When you apply for a mortgage, the prospective lender will look at your overall ability to afford the repayments.

Purely having a certain level of student debt won’t directly impact any decision to approve your mortgage. But (assuming you are earning above the minimum threshold) you will be sacrificing a portion of your income towards repaying your student loan. This obviously reduces your overall take-home pay and if this, combined with all of the other outgoings you may have – such as mobile phone bills, energy bills, repayments on no guarantor loans, car finance payments etc. etc. – pushes your expendable income below the levels of affordability for the mortgage you are applying for – then your mortgage application could indeed be declined.

However – the likelihood is that it isn’t your student loan repayments that pushed you into being unable to afford the mortgage repayments. Chances are that it is actually your other outgoings and cost of living that is the culprit – so it may be better for you to focus your attention on reducing your outgoings in these areas.

A student loan is just about the most affordable credit you will ever get in your life. So don’t let the burden of prospective debt put you off getting that degree.

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