Whether you already have student debts or you’re thinking about going to university, you may wonder how your student loan will affect your credit rating.
I’m here to tell it to you straight and clear up some common student debt myths.
Will a student loan affect my credit rating?
No. Your student loan will not affect your credit score.
I could end the blog post right now but I’ll elaborate a little…
Why do people say student debt ruins graduates’ credit scores?
It’s a common misconception that student debt can wreck a person’s credit score. But student debt doesn’t operate in the same way to other types of debt such as credit cards, loans and mortgages.
This vicious and incorrect rumour has been widely spread for many years. I think this is down to two key reasons:
- Debt-averse people see the word ‘debt’ and instantly assume it’s risky and damaging
- Politicians from all parties have miseducated the population on how student loans in the UK work, often in an attempt to score points against other parties
- The media publish misleading horror stories that portray student debt as something that drives graduates into poverty, when in reality, unaffordable housing is affecting working people’s bank balance on a much more damaging scale.
Learn more by reading my post The Way We Talk About Student Loans In The UK Is All Wrong.
Can a student loan affect my chances of getting a mortgage?
When you apply for a mortgage, the lender will carry out a series of affordability checks. This will involve taking a close look at your finances to assess how likely you are to repay the money you borrow.
To determine how much money typically leaves your account each month, they’ll look at your income and expenses (including any debts you have). Once they’ve gained an idea how much you typically spend on essentials, they’ll add this to the amount you’ll pay in mortgage repayments in the event that your application is approved.
As part of this, they’ll also look at your student debts. However, since only a modest amount of your income will go to student debt repayments each month, this shouldn’t cause any problems when applying for a mortgage.
If your application is rejected, it’s unlikely to be due to your student loan. Instead, it may be because when all your living costs are added together, the mortgage repayments will be unaffordable.
