Do student loans establish credit?

[Diana]

Hi. I’m 19 years old, and just started college. I never had a credit card, but decided to apply for one now. My bank pulled out my credit report (which I thought I didn’t had) and according to him I have a score of 661.
I have two questions:

1. How come I have a score if I never had a credit card? Do student loans build credit? I took a $4,000 student loan, but the payments are deferred for 3 years.
2. What does this score mean? Is it good or bad?

Thank you

[Stacy Wall]

Yes, Student loans DO build credit

Any extension of credit goes onto your credit report and build (or ruins) your credit. Student loans are no exception.

The good thing about student loans is that as long as they are in deferment – they are reported as being paid. This is actually good because it helps building “payment history” even though you aren’t really making payments yet.

You may want to use your new credit card wisely. Make a few purchases, wait for the statement and pay it in full. Avoid carrying balance on your card. It’s very expensive (in interest) and does nothing to build your credit.

A credit score of 661 is not very good, but for someone with your age and status in life – it’s certainly above the average. With time your score will improve.

[Sara]

Collection Penalty

Can the government put a lean on your home or garnish your wages if you default on your student loan?

[Tracy Winters]

Sure they can

Government subsidized student loans are forever. They cannot be discharged even in bankruptcy, and so will generally follow you to your grave.

Any assets that you have can be attached to enforce payment of the debt, including liens, wages garnished, tax refunds offset etc.

[Author]

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