Federal student loan payments have officially been suspended until 2021. What does that mean for your credit score? Well, there are ways it can have a positive impact on your on your credit score. I’ll provide some tips on how you can use the Federal student loan suspension to your advantage to boost your score.
“In the midst of chaos, there is also opportunity.”
Sun Tzu once said, “In the midst of chaos, there is also opportunity.” I think many will agree that 2020 has definitely been a rollercoaster ride filled with much chaos. From the pandemic to the current social justice issues, 2020 has been a year that will go down in history books and never be forgotten.
The economy took a hit due to the pandemic, and as a result many people have struggled to pay their rent and other bills. The Government voted on the $2.2 trillion CARES ACT back in March of 2020, which included the suspension of Federal Student Loan Payments until September 30, 2020.
Federal Student loan payments suspended until 2021
As of August 21, 2020, U.S. Secretary of Education Betsy DeVos, extended the relief of federal student loans until Jan of 2021 by suspending payments. As a result, federal student loans will have 0% interest and no collections. Also, if you do decide to pay during the suspended period, that money will count towards your principle, which in return will more than likely lead to your loan being paid off early..
How to use the student loan suspension to increase your score
So how can use you the federal student loan suspension to your advantage? Well I present you with two options. Depending on your current financial situation, you can either do both or one. To get the best results, I suggest you attempt to do both.
- Since not paying your student loans won’t negatively count against your credit score until 2021, you can use some or all of the money you used towards student loans, to pay down other consumer debt. If you have a car loan that needs to be paid off, you can double your payment for the last 4 months left in the year. As a result, your debt to credit ratio will decrease since you’re paying your car loan in double.
- You can use the extra funds from your suspended student loan payments to pay down credit card debt. The more you chop down your credit card debt, the better chance you’ll have of your score increasing. Using these next 4 months to pay off most if not all of your credit card debt will help you see a nice increase to your score.
- If you don’t own a credit card or have a good credit, but you’re in need of something to boost your score, you can use some of the student loan money to open a secured credit card account. Minimum secured card card deposits usually range from anywhere between $200 and $300 dollars. For more on how secured credit cards work, give this previous post on secured cards a read.
Continue to pay on your student loan
The second option is continuing to make payments on your student loans as if the 2020 student loan suspension never occurred. Remember, any payment you make on your federal student loans until 2021 will count towards the principle of your federal student loan. Paying on the principle of your loan for these next 4 months will assist with lowering your debt to credit ratio. The amount of your debt on your loan will decrease, and as a result you should see an increase to your credit score.
Whichever option you choose, this is a pretty good opportunity to give your credit score a nice boost. Use these last 4 months in 2020 to your advantage. Not only will you be chopping down your personal debt, but you’ll also be increasing your credit score as a result.
For more ways to increase and master your credit score, check out my book Strategies to Master Credit (Here)
Darnell R. McKinnon