When managing your finances, one area you might overlook is the impact of student loan debt on your credit score, which can have negative consequences. Understanding the implications of this debt is essential for taking control of your financial future.
Student loan debts are vital to your credit score, and you owe payment on them like any other debt. The amount you owe and the timeliness of your payments can significantly impact your credit score. Therefore, you need to make payments on time because failing to do so can make an indelible mark on your credit score. You are trying to build and maintain a credit score that will allow you to borrow money when needed. Otherwise, creditors may not lend you the money you need to make a large purchase, such as a home or car.
Lenders must also report the correct information on your credit score. If they furnish incorrect information or the credit bureau fails to properly investigate and remove any wrongful information, you may have a potential lawsuit under the Fair Credit Reporting Act.
If you are having any issues with improper debt collection or wrongful reporting of credit information, you should contact an experienced fair credit reporting act attorney today. Your lawyer can evaluate your legal options and take action if necessary.
Consumer protection lawyers work for you on a contingency basis, meaning they only get paid a percentage of the proceeds of your settlement or jury award if you get one. So, there is no risk in hiring an attorney.
Your Credit Score Defines You for Better or Worse
Creditors look at you in terms of whether you are a worthy risk. They are always taking a gamble when they extend your credit because there is always a chance that you may not pay them back. Then, they may need to write off your debt or sell it to a debt collector for pennies on the dollar.
Lenders have one way of knowing whether it makes sense to lend you money and how much they need to charge. They will review your credit report score and track your record of making timely payments. Essentially, you are what your credit score says you are. Lenders may consider your explanations for derogatory information on your credit report, but they are still not likely to extend credit if they view you as a significant risk. Therefore, what appears on your credit score is crucial to your financial future because you always need the ability to borrow money.
How Much You Owe Will Impact Your Credit Score
Your credit score is a mix of several factors, and one of the key considerations in your score is how much money you owe. Your debt load is essential to your credit report and comprises 30 percent of your FICO score. This load is also known as credit utilization and is the second-largest part of your credit score (behind your track record for making timely payments).
If you are using too much of your available debt, a creditor may view you as overextended and unable to repay them. They may run debt-to-income ratio calculations to see how much of your available income goes to repaying your debt. If the ratio is too high, you may struggle to get credit.
Student loan debt is an installment loan, meaning it is money you owe, which counts against your credit score—the more money you owe on your loans, the more of your installment credit you use. Student loan debt is unavoidable for many, and people will live a large part of their lives with the money they owe clouding their credit situation.
Student Loan Debt Is Not Always Harmful to Your Credit Score
However, student loans can also help your credit score in several ways. First, they can positively impact your score when you have a mix of credit. If your debt heavily comes from credit cards, you can lose points because you do not have an adequate credit mix. Student loans can diversify your credit and improve how credit bureaus and lenders view you.
In addition, you can also build your credit by making on-time payments on your debt every month. This practice can be helpful when trying to establish a credit history. You may not have many other types of debt if you do not yet own a home or a car, and making student loan payments on time is beneficial for your future borrowing power.
The Failure to Pay on Time Can Sink Your Credit Score
At the same time, failing to make your student loan payments on time will damage your credit. Timely payments are 35 percent of your FICO credit score, and even one missed payment can drop your credit score by a significant amount. The missed payment will remain on your credit history for seven years, even though its impact will diminish over time. If you were in a situation where you had to default on your student loans, the effect is even more catastrophic.
You may also see a drop in your credit score if you attempt to refinance your student loans to get a more favorable rate. When you seek new credit, there will be a hard inquiry on your credit report. The more inquiries creditors make, the more your score may drop because lenders will see you actively trying to take on more debt. However, it often makes sense to refinance your loans because you will get a more favorable interest rate, notwithstanding the hit to your credit score.
Paying Loans Off Can Even Drop Your Credit Score
Paying off your student loans can drop your credit score for a period of time. You may think that it is in your interest to be debt-free, but in some cases, this is actually not true. Creditors like to see open accounts and a history of on-time payments. Credit history is another essential element of your score. If you finish paying off your student loans, or if the government forgives your loans, you may notice a temporary drop in your credit score. Some people report that the change may be as high as forty points. Eventually, this hit to your score will go away over time as you build more credit history with different loans.
Student Loan Servicers Do Not Always Have the Best Business Practices
Having student loan debts can also present other risks to your credit. Student loan servicers are not always known for having the best track record in accuracy. Some may sell your loans to different services over time, and you can deal with a company that does not have the best business practices. This company may be unethical and engage in wrongful practices that can damage your credit and cause harm.
Student loan servicers have even tried to collect on discharged loans in various ways. For example, some may qualify for student loan discharge in bankruptcy, even though it is rare to do so. Even still, student loan servicers have tried to collect on these loans. Recently, the Consumer Financial Protection Bureau issued a notice that stated it was examining the collection practices of student loan servicers who are trying to collect student loan debts that are not valid. Student loan servicers can be subject to a lawsuit in the same way as any other creditor.
Federal and State Law Barr Illegal Debt Collection Practices
Sometimes, student loan servicers may sell your debt to a collector for pennies on the dollar. Then, the debt collector will do whatever they can to collect on your debt so they can make money. The debt collector may call or try to harass you to intimidate you into paying what you owe.
The Fair Debt Collection Practices Act limits what debt collectors may do and restricts them from certain practices. For example, if you tell the debt collector to stop calling you, they must heed your word. If they continue to contact you after you have told them to stop, they are breaking the law. They also cannot call you during certain hours, threaten you, or misrepresent their identity.
You Can File a Lawsuit Under the FDCPA
You can take legal action if a debt collector has broken the law. The Fair Debt Collection Practices Act allows you to file a private lawsuit against the debt collector and seek damages for their wrongdoings. If you can prove that they violated the law, you can recover the following damages:
- Statutory damages of up to $1000
- Compensatory damages for the economic losses that you suffered from their action
- Emotional distress damages for the harm that you suffered from their harassment
- Attorney’s fees (you will not have to pay your attorney from the proceeds of your settlement
You will not qualify for punitive damages under the FDCPA. However, you may be eligible for punitive damages if you file a lawsuit under state law. An attorney will advise whether federal or state court filing is in your best interest.
You May File a Lawsuit If There is Wrongful and Derogatory Information on Your Credit Report
You may also have a potential lawsuit under the Fair Credit Reporting Act. This law requires creditors to furnish accurate information for your credit report because they cannot supply derogatory information for an invalid debt. Then, you have the right to challenge any incorrect data on your report and file an appeal with the credit bureau. The credit bureau must undertake a reasonable investigation of your appeal and will look into the reported entry, verifying whether it belongs on your credit report. The credit bureau must make this investigation unless it deems your complaint to be frivolous. If it fails to investigate, it can be liable in a lawsuit.
If you can successfully sue under the FCRA, you may receive the following damages:
- Statutory damages between $100 and $1,000
- Your actual economic losses when you were unable to qualify for credit
- Attorney’s fees
The situation may be even worse for the credit bureau if it knowingly and willingly refuses to investigate your case. Then, the FCRA explicitly allows you to recover punitive damages that can increase the size of your award.
Hire a Consumer Protection Attorney to Protect Your Rights
You should hire a consumer protection attorney when you have any issues with wrongful debt collection. Your attorney can assess your legal options and stop any wrongful practices while they prepare to file a lawsuit on your behalf. They will compile the necessary documentation and evidence to support your claim, ensuring a solid case. These attorneys are well-versed in legal procedures and can provide valuable advice on the best course of action to protect your interests and seek compensation for any damages you may have suffered.
Another crucial aspect of hiring a consumer protection lawyer is that they have the experience and resources to negotiate with lenders on your behalf. These professionals are well-versed in the tactics employed by lenders and can effectively advocate for your rights as a borrower. They will work tirelessly to challenge unfair interest rates, loan terms, and fees to secure a more favorable outcome for you.
You do not need to worry about how you will pay a consumer protection attorney. These types of attorneys will work for you on a contingency basis, and if you win your case, the defendant is often responsible for paying your attorney’s fees. Your attorney works for you without asking you for any money out of your own pocket and will not send you bills during your case. They also will not get paid for their time or services if you do not win your case.
Since there is no cost to hire a consumer protection lawyer, it makes all the sense in the world to get the legal help you need. Navigating the complexities of student loan debt can be overwhelming, but you do not have to go through it alone. By hiring a consumer protection attorney, you can gain peace of mind knowing you have a knowledgeable and experienced advocate.