It's not uncommon for students to graduate with an average of $20,000 in debt from student loans. How this loan is repaid can affect your credit score tremendously. Here is what you need to know.
1. In Ontario, you get a 6 month grace period before interest begins to incure. However, as of Nov 1 2016, students are not required to begin paying their loan until they are earning at least $25,000 annually - interest does still incur after 6 months.
2. Initially, a loan of thousands of dollars can negatively impact your score but if payments are made on time, every time, your credit will begin to improve.
3. If payments are missed consecutively for more than 9 months, your loan account is considered in default and will be sent to CRA (Canada Revenue Agency) for collections.
Writing Off Your Student Loan
There is a statue of limitations on unsecured debt. If 6 years goes by without payment or acknowledgement of your loan, it will be written off. If it has been 7 years since you've graduated, your Canadian Student Loan will be eliminated, if you file for personal bankruptcy. This is not a recommended, seeing as it will cost you hundreds of points off your credit score and will remain on your credit report for 10 years.
Even though your debt is eliminated with this option, your credit history is damaged and you're left with a tremendously low score. This will prevent you from being accepted for future loans.
You can’t apply for repayment assistance, if your payments are delinquent for more than 90 days.
"Rehabilitate" your loan. If your Canadian Student Loan is in default, you can contact the National Student Loans Service Centre (NSLSC) to have your loan “rehabilitated” This means your loan will be transferred back to the National Student Loans Service Centre from collections at CRA, if you meet their three requirements.
Continue to pay your other bills. Remember to consistently pay your utility, car loan and credit card bills on time. Your credit score is impacted by these payments just as much as it is by your student loan.