Effective July 1, 2009, the government is instituting a new repayment plan called Income Based Repayment, or IBR.  This new payment plan adjusts your payments to reflect your income as well as your dependents. After 25 years, if you still have a balance on the loans, that balance is forgiven. For individuals who have low income or several dependants, this provides a viable way to keep your credit rating clear, while still maintaining affordable payments throughout your loan term.

Student loan debt is often a factor when determining whether or not you qualify for credit. Unless you are currently in deferment or forbearance, the total amount of your student loan debt is part of your debt-to-income ratio. However, most lenders view student loan debt as “good” debt, and are less likely to penalize you in that regard. Showing a consistent payment history out of forbearance and/or deferment can help to build credit as well – if your monthly payments are lower under IBR, this can also be a factor when creditors are deciding whether or not you have the ability to repay.

Regardless of whether or not you have your student loan payments adjusted under IBR or some other program, it’s important not to let payments on student loans lapse. While having student loan debt may not prevent you from qualifying for the credit that you deserve, missed payments on student loans certainly can. And because student loans fall under a special category of debt, in most cases you cannot have student loans discharged with bankruptcy, or any other means. If student loans are a potential tipping point for you with regards to your ability to repay financial obligations, IBR’s lower payments may be useful to you as well.

For individuals who have a higher income level, or who expect to have a higher income level in the future, IBR may not be the best option. Because the repayment plan is so lengthy, it is best suited for individuals with lower income jobs over the long term. If you have a temporary financial setback, forbearance and deferment are still your best options. Whichever repayment or deferment option you choose, you should check your credit report to ensure that it accurately reflects your current payment status. Often, missed payments can be removed from the credit report if you have your deferment or forbearance take effect retroactively – this will give you a clean slate to start with when you begin your repayment again, and will give your credit scores a natural boost as well.

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Pay Attention to the Contract

It doesn’t matter who the divorce decree stipulates as the responsible party for the debt. What matters is the name on the dotted line. If you signed a contract, you are responsible for the debt, even if the divorce decree says your ex is supposed to pay up. If he or she fails to meet the obligation, it’s your credit that will suffer, not your ex’s. So you may want to be particularly careful of those debts you have your ex to take on, if you have any reason to suspect that they won’t be paid in a timely fashion.

Get Credit in Your Own Name

Years of marriage can leave you sorely lacking in the credit history department if everything is in your spouse’s name. Even if you help pay for the house, the car, that business loan or any other debts of the household, if your name isn’t listed, that pristine payment record will not show up on your credit history. Even if you have no plans of divorce, it’s still a smart move to have both spouses jointly responsible for major household purchases such as a house or a car – that positive payment history can help you get credit on your own if someday you and your spouse do call it quits.

Keep a Close Eye on Your Credit Report

Your ex likely had access to all of your personal information throughout the course of the marriage. Sadly, most cases of identity theft are perpetrated by someone that the victim knows. If you’re recently divorced, make certain that all joint accounts are closed, and take extra measures to ensure that no one else is opening accounts in your name with your personal information.

Hire a Credit Repair Service

If a divorce has put a blemish on your credit, don’t despair. Quality credit repair companies are often able to clear up inaccuracies caused by divorce, and any debt that is not your legal responsibility can always be disputed and removed from your credit report. So if you are recently divorced, or in the middle of a divorce, don’t let credit problems catch you by surprise. Be proactive and take measures to preserve the good credit you’ve built over the years of your marriage.

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