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CREDIT REPORT SERVICES AND ONLINE EXPERT HELP ARE FULLY OPERATIONAL - PHONE LINES ARE CLOSEDCOVID-19 STATUS

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Do Student Loans Affect my Credit Score?

Posted by Sam Griffin in Credit Score on 4 March 2020

According to government statistics for 2019, UK students (those currently studying and already graduated) owe a colossal £121 billion in outstanding student loans. To put this gigantic pile of UK debt into perspective, it overshadows the entire world’s combined annual budget for space programmes. All the cutting-edge, space-bound engineering and cosmic knowledge of the world’s most well-funded space agencies, NASA (US), ROSCOSMO (Russia), and CNSA (China) only collectively reach an estimated £28 billion a year – barely comparable to the grim achievement of today’s British students.

It might be fair to say that investing in education is more important than exploring the infinite expanse, but there’s no argument to be had that this is a lot of debt.

So chances are that, even if you haven’t personally got a student loan, you’ll know someone who has. Because student loans are so commonplace nowadays, it’s natural to wonder exactly what they mean for your wider financial future.

Do student loans affect my Credit Score?

Modern, government supplied student loans do not feature on your Credit Report so will not affect your Credit Score. You won’t find an account from the Student Loans Company on your Credit Report, as it doesn’t share repayment information with the UK’s Credit Reference Agencies – Equifax, Experian, TransUnion, and Crediva. As your student loan information won’t be on your Credit Report, the repayment history won’t be visible to any lenders you apply with, meaning there’s no way for them to know how much you owe and whether you’ve made all your repayments on time or missed some.

In short, if you have a student loan from the Student Loans Company from 1998 onwards, it doesn’t matter whether you’ve paid it all off, just some of it, or none at all. Your student loan won’t influence your Credit Score.

There are two small but important exceptions to this: anyone who attended university before 1998 and those who’ve taken out private student loans.

What about student loans from before 1998?

If you have a student loan from before 1998, don’t panic – much like student loans from after 1998, they’re unlikely to affect your Credit Score, but it’s important to know the finer points, especially when it comes to your finances.

Student loans started off in 1990 as a fairly traditional form of low interest rate borrowing, meaning there was potential to default on the repayments. The average loan in 1990 was £390 – adjusted for inflation, this is worth about £900 in today’s money. For a quick comparison, the average debt of a university graduate today is over £50,000. Failure to repay scheduled monthly student loan repayments meant you could default, be taken to court, and have a County Court Judgment (CCJ) lodged against you.

CCJs – even nowadays – are severe negative markers that can damage your Credit Score and derail any credit applications you hope to make. While your specific loan information won’t be on your Credit Report, any CCJs relating to it certainly will be, so they’ll be visible to any lenders you apply with. CCJs stick to Credit Reports for six years from date of issue. Once this time has passed, they’ll be totally removed, regardless of whether you’ve fully satisfied the balance or not.

1998 saw some major changes to how student loans work in the UK. Most notably, repayments were designed to be plucked directly from your wages, rather than you needing to actively contact the Student Loans Company to arrange repayments. This automatic repayment for post-1998 student loans makes it virtually impossible to miss any, meaning court action is similarly unlikely.

If you took out student loans from before 1998, you will be expected to make repayments directly to the Student Loans Company. Missing any required payments means there is potential that you will be contacted by recovery agents – either by telephone, letter, or maybe even in person by a debt collector – just as you might for regular debts. It’s in this pre-1998 scenario that you face the possibility of court action to reclaim owed balances. Remember, any CCJs lodged against you can really hurt your Credit Score and ability to obtain credit for six years.

Student loans taken after 1998 will have repayments automatically deducted from wages – in the same way that income tax or National Insurance are. If you earn less than the salary threshold to make repayments (£25,725 at time of writing), you simply aren’t required to pay until your salary grows beyond the threshold.

Does a private student loan affect my Credit Score?

‘Private’ student loans are loans provided by private, for-profit lenders, rather than the government organisation, the Student Loans Company. Students might be drawn to private lenders if they aren’t eligible for government loans or if they’re seeking a larger amount.

There are some major differences between the traditional, government supported student loans and private ones. The safety and convenience of government student loans, such as not having to repay your loan until you earn over £25,727 a year and that your debt will be totally wiped after 30 years, are not features you enjoy with private loans.

Instead, private loans are subject to their own terms. It’s not uncommon for these to have relatively high interest rates, require repayment regardless of whether you’re employed after university, and might even demand payment while you’re still studying.

Importantly, private lenders often share your loan account information with the Credit Reference Agencies, another key difference from government student loans. This means your account and its repayment history will feature on your Credit Report, influencing your creditworthiness and affordability.

As private loans can be added to your Credit Report, any missed payments, arrears, or defaults can be recorded on your Credit Report, potentially harming your Credit Score.

Say for instance you are made redundant: with a post-1998, government student loan, repayments will stop when your income does, so your Credit Rating is one less thing to worry about at a difficult time. You won’t be required to pay anything until your annual salary hits the £25,727 threshold again. Once you’re back on your feet, any required payments will be taken automatically from your pay, flexing according to how much you’re earning each month (or whatever frequency you’re paid).

If you lose your job while having to repay a private student loan, you’ll very likely still have to make your monthly payments as scheduled - otherwise your Credit Score will take a hit, along with your bank balance. Continued non-repayment may result in arrears (consecutive missed payments) and even default makers being added to your Credit Report. These progressively severe negative markers will harm your Credit Score for the full duration they’re on your Credit Report – usually six years – making credit harder to come by and more costly. There’s also potential for debt collectors to give you a visit.

Put simply, student loans provided by the official government service Student Loans Company are safer for your finances and Credit Rating than private student loans.

Will student loans affect my applications at all?

As we’ve already highlighted, loans issued post-1998 by the Student Loans Company aren’t a component part of Credit Reports, so it’s not possible for them to harm your Credit Rating through missed payments – paying on time is out of your hands and so the record of doing so (or not) isn’t considered relevant.

The success of your credit applications essentially rests on your creditworthiness and affordability calculation. While it’s true that student loans usually don’t affect your Credit Score, that really is just one part of the larger picture.

Your monthly outgoings are an important factor that make up your affordability. Student loan repayments from 1998 onwards are deducted from PAYE automatically, so they aren’t considered an outgoing exactly, but they will leave you with a smaller payslip. This reduced income naturally equates to lower affordability, but this impact is likely to be minimal and it’s mostly out of your control. Monthly payment to the Student Loans Company is quite literally the price for higher education and the subsequent salary you might receive because of the qualifications.

The actual debt itself won’t drastically impact your affordability in the same way another debt might, such as a mortgage. For example, having a £50,000 student loan debt is unlikely to be factored into your affordability as its repayment terms are so different to regular loans under the Consumer Credit Act, most notably because your student loan doesn’t show on your Credit Report and doesn’t even need to necessarily be fully repaid, if at all (depending on your salary).

To sum up:

  • Regular student loans from the Student Loans Company (from 1998 onwards) have no influence on Credit Scores
  • Pre-1998 student loans are similarly unlikely to affect your creditworthiness, with the exception of any court action taken to reclaim owed payments – CCJs can do some real damage to your Credit Score
  • Private student loans – though used much less frequently – definitely can harm your Credit Score, depending on how you’ve managed the account. Providing you ensure all monthly payments are made on time, they’re unlikely to harm your creditworthiness, but the outstanding balance will be factored into your affordability whenever you apply for credit. Missed payments, arrears, and defaults on private loans can hurt your Credit Score, much like CCJs

How do I check my Credit Report?

Whether you’re looking for information about your private student loan or are just curious about your Credit Score, checking your Credit Report for yourself is the best place to start as it’ll show you the exact information available to prospective lenders.

Our Multi Agency Credit Report is the most detailed in the UK – collating your complete information from Equifax, Experian, TransUnion, and Crediva – so you know you’re seeing everything you need.

You can try checkmyfile free for 30 days, then just £14.99 per month. You can cancel easily at any time online, or by freephone or email.

If you have any questions about your Credit Report, you can contact our professionally qualified Credit Analysts through your account.

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