Student Loans - Borrowing Impacts Credit

College Money Matters

Student Loans - Borrowing Impacts Credit

Student Loans - Borrowing Impacts CreditIn order to understand the effects of borrowing on your credit, we need to step back and understand credit, which can be confusing. Credit, in the financial world, has more than one definition which, in fact, are opposite of each other.

Credit - To deposit money into an account. If you purchase a shirt and decide to return it, the store will either give you cash back or credit your account.

Credit - The ability to obtain goods or services before payment is actually made. The consumer is given the good or service based on the promise that it will be paid at a later time.

This page is focused on the 2nd definition. Credit is also called borrowing. A lender is someone who allows someone else to use their money to purchase something now and repay them in the future. This is also known as a loan.

Without realizing it, you have likely been borrowing for some time now. You forgot your lunch or needed gas money and had to borrow money from a friend. Maybe you borrowed money from your parents for a video game or prom ticket.

Maybe you were the one lending money to friends. If it wasn't paid back in a reasonable time, you likely thought twice before lending again to that individual.