- Student loans in Canada
- How student loans affect your credit score
- How to use student loans to build your credit score
- Student loan FAQ
- Credit score FAQ
It’s that time of year again – high-schoolers are going off to prom and tossing their square academic caps in the air, hopeful for their futures after their biggest milestone yet, embarking on a new adventure to university or college.
Or maybe you’re in the midst of your summer break and enjoying your time off school before it’s time to go back for another year.
Either way, one thing nearly all students need to start thinking about is financing your education for the upcoming school year. Odds are, student loans may need to be a part of funding your educational endeavour.
And if so, we have everything you need to know about student loans in Canada.
We recently went over financing for students, and now we’ll discuss how they can affect your credit score.
Spoiler alert: they can actually improve it, as long as you make your payments on time.
Student loans in Canada
For a brief recap on how student loans work – you can borrow money from both the federal and your provincial or territorial government (with the exception of Quebec). Some provinces combine the 2 together, others require you to apply separately.
As long as you stay enrolled as a full-time student, you won’t have to worry about paying anything back.
But, once one of the following events happens, you’ll have 6 months to start paying back your loans:
- you graduated,
- you transferred to part-time studies,
- you dropped out, or
- you’re taking more than 6 months off school.
Interest generally starts accumulating as soon as one of these events happen, even though you don’t have to start repaying right away.
Student loan forgiveness
There are a few scenarios where you can have your loans forgiven, or at the very least, won’t have to pay interest on them.
They generally involve moving back to the province or territory in which you received your loans from.
For example, in Nova Scotia, if you return there to work, you won’t have to pay any interest on your loans.
In Nunavut, if you return to the territory after graduating, your loans are forgiven and are essentially turned into grants.
Ends Dec 18, 2019.
How your student loans affect your credit score
So how do student loans affect your credit score? Basically, they’re treated just like any other loan on your credit file. They’re installment loans (a balance that gets paid over time with fixed payments over a set period) and appear alongside any other loans you may have.
Good news first
In terms of your credit score, as long as you make your minimum payment on time, your student loans will improve your credit score. You’ll be able to show that you make payments on time, and would be a trustworthy lender.
Bad news last
Obviously, if you fail to make payments, your credit score will decline.
But there’s a little more to it. Your student loans are considered debt and will factor into your debt to income ratio when getting future loans.
That means you may be more limited in how much you are able to borrow for future loans, such as car loans or mortgages.
How to use your student loan to build your credit score
To build up your credit score using student loans, all you have to do is make sure you make at least your minimum payment when specified.
Or, since the minimum payments are most likely just taken straight out of your bank account, make sure you leave enough in your bank account to cover your minimum payment amount.
Student loan FAQ
Here are some common questions regarding student loans in Canada.
Student loans Canada contact
Here’s how to contact Canada student loans and grants:
Phone number: 1-888-815-4514
Mail: National Student Loans Service Centre, P.O. Box 4030, Mississauga, ON. L5A 4M4
Or, simply head to this site, click on Canada Student Loans And Grants and fill out the contact form.
When to apply for a student loan
You can start to apply for student loans roughly 3 months before the school year starts. You’ll want to apply at least one month beforehand to give yourself enough time.
Also, you have to re-apply for student loans every year.
How to repay your student loan
To start repaying your student loans, you’ll receive a package on how to pay them back. You’ll agree on an amount to pay, when you pay, and how often to pay. And you can always make lump sum payments any time you wish to pay your loans off faster.
More details are here.
What’s the average student loan in Canada? How long does it take to pay it off?
Statistics Canada states the average university graduate in Canada finished with more than $26,000 of debt.
It took an average of 10 years to pay off the debt according to Students Loans Canada.
What’s the maximum student loan available?
The maximum you can receive per week is $210, for up to 340 weeks of studies (400 weeks for anyone enrolled in doctoral studies).
The actual amount you receive varies based on many factors, including your parents’ income, how many siblings you have, and if any siblings are also attending post-secondary schools.
What’s the average monthly payment people pay for their student loans?
Based on a borrowed amount of $26,000, the average monthly amount paid back on student loans is roughly $300 per month. It will vary greatly on how fast you want to pay them off, or how much interest you have to pay.
Credit score FAQ
Here are some common questions on credit scores.
Equifax vs Transunion credit score
The credit scores each bureau produces can be slightly different since the algorithms they use are different.
However, as all credit products are reported to both bureaus, the information on each report should be the same. The only difference is with credit inquiries, as lenders only check one bureau when granting credit.
What are the credit score ranges in Canada?
Here are the various score ranges in Canada:
- Over 760 – excellent
- 725 to 759 – very good
- 660 to 724 – good
- 560 to 659 – fair
- 300 to 559 – poor
Credit score meaning
Your credit score is a number that factors everything on your credit file and gives a representation of how you look to your potential lenders.
Lenders may also just take the information from your score and calculate their own number as well.
The bottom line
While most students want to avoid getting loans, for many, it’s the price to get yourself a good education.
But that doesn’t mean it’s all doom and gloom.
And your credit score is one thing you won’t have to worry about, as long as you make your payments on time. They’ll actually help your score, showing other lenders that you make your payments and are trustworthy of being loaned money.