{"id":22193,"date":"2023-06-13T18:27:13","date_gmt":"2023-06-13T22:27:13","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/missing-even-one-student-loan-payment-can-seriously-hurt-your-credit-score-heres-by-how-much\/"},"modified":"2023-06-13T18:27:14","modified_gmt":"2023-06-13T22:27:14","slug":"missing-even-one-student-loan-payment-can-seriously-hurt-your-credit-score-heres-by-how-much","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=22193","title":{"rendered":"Missing even one student-loan payment can seriously hurt your credit score. Here\u2019s by how much."},"content":{"rendered":"

More than three years after the payment freeze, the restart of student loan bills is going to be a significant event for borrowers\u2019 budgets \u2014 and for their credit scores.<\/p>\n

Missing the first payment could eventually result in a double-digit ding while an on-time first payment could be a single-digit bump, according to the consumer credit score company VantageScore.<\/p>\n

\n

In a score that ranges from 350 to 850, the credit scores of borrowers missing the first payment could eventually shrink by 49 to 82 points on average, according to VantageScore estimates.<\/p>\n

On the other hand, people who make that first resumed payment could ultimately see anywhere from a 3- to 8-point average increase depending on variables like a person\u2019s credit history, VantageScore researchers said. <\/p>\n

A credit score is a critical number lenders use to decide what rates and terms they should extend to a person who needs financing for purchases like a car or a home.<\/p>\n

Missing a student-loan payment could be the difference between favorable terms on a loan at a time when interest rates are rising \u2014 or it could be the difference between even landing a loan in the first place.<\/p>\n

<\/p>\n
\n

\n \u201c<\/span>Missing a student-loan payment could be the difference between favorable terms on a loan at a time when interest rates are rising \u2014 or it could be the difference between even landing a loan.\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n

So what should graduates do? \u201cIf they can figure out a way to resume their student-loan payments, this is a really good time to do it,\u201d said Silvio Tavares, president and CEO of VantageScore, a company owned by the three major credit bureaus, Equifax
\n EFX,
\n +1.74%<\/bg-quote>,<\/span>
\n TransUnion
\n TRU,
\n +1.28%<\/bg-quote>
\n and Experian
\n EXPGY,
\n +1.19%<\/bg-quote>.<\/span>\n <\/p>\n

\u201cThe credit environment just got a bit choppier, and it\u2019s going to be a somewhat higher risk for lenders,\u201d Tavares said.<\/p>\n

Anywhere from roughly one-third to three-quarters of borrowers might miss the first required payment, depending on VantageScore\u2019s scenarios. That\u2019s a wide swing of possibilities, but Tavares says it\u2019s challenging to model for a massive payment restart on debts that have been dormant for years.<\/p>\n

Federal student-loan payments have been on hold for more than 40 million borrowers since March 2020 when the COVID-19 pandemic began. Americans owed $1.6 trillion in student-loan debt through the first quarter of 2023, according to the Federal Reserve Bank of New York. <\/p>\n

People were paying an average of $393 each month on their student loans, according to one Federal Reserve estimate ahead of the pause. <\/p>\n

The eighth and final payment pause will conclude in late August, as one part of a newly-enacted deal to raise the federal government\u2019s debt ceiling. Borrowers and servicers are still waiting for details about when payments restart, observers say. <\/p>\n

Supreme Court will rule on loan forgiveness<\/h2>\n

Meanwhile, the Supreme Court is expected to rule this month on the Biden administration\u2019s student-loan cancellation plan. The controversial order would cancel up to $10,000 for eligible borrowers with federal student loans and up to $20,000 for Pell grant recipients.<\/p>\n

Without cancellation, the Biden administration has maintained that there will be a wave of student-loan defaults and delinquencies. (The VantageScore analysis looks at existing loan balances, not balances after a cancellation.) <\/p>\n

The cracks are already showing, according to the Consumer Financial Protection Bureau. Through March, approximately 2.5 million student-loan borrowers were behind on a debt that wasn\u2019t a student loan, researchers said. That\u2019s roughly 200,000 more borrowers falling behind compared to September 2022.<\/p>\n

Any impact on credit scores will take time<\/h2>\n

Any change for credit scores \u2014 up or down \u2014is going to take time, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade association.<\/p>\n

Before the 2020 payment pause, \u201cyou\u2019d have to miss three consecutive payments in order to get any negative credit-bureau reporting at all,\u201d he said. During the pause, loan servicers reported borrowers as being up to date on their student-loan repayments to credit bureaus, he noted.<\/p>\n

Servicers are still waiting to hear from the Department of Education on what happens after<\/em> the pause ends. That includes the exact dates when payments actually restart, and what the credit-reporting rules will be, Buchanan said. He bets that timelines to report delinquencies will be \u201ceither the same, or more flexible.\u201d<\/p>\n

\u201cBorrowers are going to have an adjustment period. We know that. The Department of Education knows that,\u201d Buchanan said.<\/p>\n

The Department of Education did not immediately respond to a request for comment.<\/p>\n

Despite rising inflation, it\u2019s actually been a good time for many credit scores. A strong job market and healthy cash balances are two reasons, Tavares said.<\/p>\n

<\/p>\n
\n

\n \u201c<\/span>Student-loan servicers are still waiting to hear from the Department of Education on what happens after the pause ends. \u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n

As of April, the average score in the U.S. was 702, up from 697 one year earlier, according to VantageScore data. \u201cThe average American consumer is very credit worthy,\u201d Tavares said. A score of 661 to 780 is considered \u201cprime,\u201d and a score of 781 to 850 is considered \u201csuper prime.\u201d<\/p>\n

But some of that shine is about to come off the average score, VantageScore\u2019s latest estimate shows. In a worst-case scenario where three-quarters of borrowers do not make that first student-loan payment, the aggregate score would fall by 9 points to 693.<\/p>\n

In a best-case scenario \u2014 where roughly one-third of borrowers miss the first payment \u2014 the national average score falls by 1 point.<\/p>\n

VantageScore generates approximately 19 billion scores annually, Tavares said. <\/p>\n

But what matters to borrowers are their own scores, and how those numbers affect their financial lives, said Persis Yu, deputy executive director of the Student Borrower Protection Center.<\/p>\n

The Biden administration\u2019s student-loan cancellation order could be \u201clife-changing\u201d if it takes effect, she said. From stretched wallets to glitches resuming payments, there are all sorts of ways people could miss a first payment, Yu said. <\/p>\n

The VantageScore analysis is \u201canother piece of evidence to show the devastation that is going to occur if payments are resumed without cancellation,\u201d she added.<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

More than three years after the payment freeze, the restart of student loan bills is going to be a significant event for borrowers\u2019 budgets \u2014 and for their credit scores. Missing the first payment could eventually result in a double-digit ding while an on-time first payment could be a single-digit bump, according to the consumer […]<\/p>\n","protected":false},"author":1,"featured_media":22194,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-22193","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nMissing even one student-loan payment can seriously hurt your credit score. 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