Millions of student loan borrowers will face a significant drop in their credit scores once delinquencies appear on their credit reports in the first half of 2025, according to a recent report from the Federal Reserve Bank of New York. The delinquencies come as a result of the Education Department restarting collection efforts on federal student loans that are in default after having paused those efforts for years.
During the COVID-19 pandemic, borrowers were given a yearlong “on-ramp” period during which late or missed payments didn’t lead to a hit on their credit reports. However, this pause has expired, and now we’re seeing the effects on delinquency.
If you see your credit score take a tumble due to these changes, here are some steps you can take to start bumping it back up:
First, get a good grasp of your current situation by visiting the Federal Student Aid website and pulling a report from the National Student Loan Data System. This will give you a full history of your student loans, including outstanding balances.
Next, work with a student loan consultant to fully understand your options. They can help you navigate the process and find the best solution for your individual circumstances.
In addition to working on your student loans, there are several steps you can take to boost your credit score:
Minimize revolving debts and make on-time payments. This is especially important for high-interest revolving debt, such as credit cards.
Maintain a long credit history by making regular payments and keeping old accounts open.
Get a higher credit limit to lower your credit utilization ratio.
If you have errors on your report, dispute them immediately. You can get a free weekly report from the three major credit reporting agencies at AnnualCreditReport.com.
Finally, consider using a credit builder card to help build or repair your credit. These cards can be used like any other credit card and will reliably build your credit history with every transaction.
By taking these steps, you can start bouncing back from a damaged credit score caused by the restart of federal student loan collections.
Source: https://www.kansascity.com/news/business/article308049860.html