Purpose of a Student Loan - Consumer Debt

An accomplished automotive sales and management executive, Abdul B. Seedat draws upon three decades of experience working at several car dealerships. Abdul B. Seedat serves as finance director at Steven Ford in Jersey City, New Jersey. He also has extensive experience in various finance areas such as corporate finance, investment management, and consumer debt.

A type of consumer debt, student loans are made by public or private entities to help pay school-related expenses of a student who will pay back the loan with interest in the future. Since they are consumer debts, the interest rates charged on school loans are much higher when compared to other debts, such as mortgage loans. Also, because education is an intangible asset and does not increase in value over time, a student loan debtor cannot reimburse the loan directly from profits or an appreciation of assets.

Often, people take out loans during the early stages of their lives for accommodation and education. Later, the degree obtained through the loan puts them in a position to get a satisfactory job with a relatively high income. With the income, they can pay off their debt. Student loans give more people the chance of qualifying for better-paying jobs in the future, which improves the lives of individuals and also creates an upward trajectory for the economy.

2 Factors Make Biggest Impact on Credit

A business administration graduate of The Wharton School of the University of Pennsylvania, Abdul B. Seedat is a finance director at Steven Ford in Jersey City, New Jersey. Previously a director of finance at Vince Auto Group in Madison, Abdul B. Seedat completed applications, pulled out buyer credit scores, and handled credit approvals. He offers guidance to customers on improving their credit scores.

There are five major factors lenders use to calculate a person’s credit score. They include payment history, credit utilization, credit history, credit mix, and new credit. The first two, however, make the biggest impact on your credit score, accounting for 35 percent and 30 percent of your score, respectively.

Payment history is how often you pay back your loans. Timely payments are ideal. A single missed payment can hurt your credit score. As a consumer, make all your debt payments on time. This includes payments on your auto loans, credit cards, student loans, personal loans, and home mortgages. If you do miss a payment, you can still pay any time before the end of a full billing cycle and it will not impact your score negatively. Payments that are not loan-related like utility payments are not included in assessing payment history.

Credit utilization is the other important factor to keep track of. It is calculated by adding up the total revolving credit you are using versus your total revolving credit limits. It is a measure of how much of your qualifying credit you have taken advantage of. A credit utilization rate below 30 percent is ideal, but generally, the lower it is the better.