Credit and Student Loans: Building and Protecting Your Credit History
Know Your Credit Score
Your credit score will be a major part of your adult life, so keeping it satisfactory (meaning as high as possible) is critical. While in college, you may need to apply for a private student loan to help you with your college expenses. To qualify for the funds, your private lender may review your credit history to determine if you are “credit worthy,” which is based on its lending criteria. Your credit score can be obtained through Experian, Equifax or TransUnion—the three major credit reporting agencies. Banks, credit card companies and other financing agencies all regularly report your payment history, amounts borrowed and loan terms to the credit reporting agencies. Bad credit such as liens, collections, past due accounts and bankruptcy can remain on your credit report for years, thereby lowering your credit score. A low credit score can make it difficult to get additional credit or a good interest rate on a loan. So keep and eye on your credit score, and do your best to keep it high.
Finding a Loan if You Have Poor Credit History
A poor credit history can keep you from getting a low-interest student loan through a private lender. However, each lender has its own credit-granting criteria, and you may be able to find one that will work with you. Of course, the loan you are qualified to receive may have a high interest rate or may require a cosigner. Either way, if you repay this loan in a timely manner it could help you reestablish a good credit history.
Working with a Lender of Last Resort
If you have a terrible credit history, and it seems like no lender will help you out, you have one option. They’re called “lenders of last resort.” Despite the ominous name, there are lenders of last resort for students in each state that may be able to help you out. While you are still required to complete an application and go through a credit check, the lender of last resort is a private lender with credit-granting criteria that may be more flexible than a traditional lending institution. Keep in mind that you may still be denied credit for a student loan.
Don’t Default on Your Student Loan
After graduation, besides getting a good job, don’t forget to repay your loans. You are granted a grace period before repayment commences, which will give you some time to get established in your new life. Once it’s time to begin making payments, however, take the responsibility seriously. You are considered to be in default on your student loans when you don’t make the required payments. This will be reported as a negative mark on your credit report and could influence your ability to get future loans (such as automobile and home loans). Since some employers also look at your credit history, this could prevent you from landing that perfect job . There are so many options available through the federal government to help you when you are having financial difficulties, so it is better to contact your student loan servicing agency before going into default.
Avoid Credit Scams
Unscrupulous businesses know that college students are not usually credit savvy, and that makes students easy prey for credit scams. Student credit card scams come in a variety of forms that include offers for low interest-rate loans or unsolicited phone calls on how to get an easy loan. You may even receive an offer through e-mail. Before you provide any information, check out the offer carefully and read the fine print. Once you provide some basic information on yourself, such as a Social Security number and birth date, a crook could steal your identity–so don’t give this out to anyone unless you initiated the contact. Also, watch out for anyone offering special loan deals. These could end up costing you quite a bit in fees and may even destroy your credit history. Do a little homework before taking advantage of an offer, and if it sounds too good to be true, it probably is.
Watch Out for Identity Theft
At any point in your life, you could become the victim of identity theft. When your credit history is stolen and abused, it can be difficult to obtain any credit, including a private student loan. Finding out your identity has been stolen may be a shock at first, but it is important to immediately follow up with law enforcement agencies and the credit bureaus. A note can be added to your credit report indicating that you were the victim of identify theft, which alerts potential lenders that they need to verify all information when they are offering credit. Repairing your credit may take many years and could require a lot of work on your part to get each creditor to remove the “bad” credit. Though it may be difficult, it is still possible to obtain credit after your identity was stolen.
Improve Your Credit by Rehabilitating a Bad Student Loan
After graduation it is important to maintain your credit history since this will impact your future ability to qualify for a car loan, mortgage and other types of credit. If you default on a student loan, this will appear as an adverse mark on your credit report. However, you can fix your credit scores by rehabilitating the loan. During this process, you will be required to make regular payments on the student loan by a due date each month for a period of usually nine to 12 months. (The length of time that you may be required to make payments depends on the type of loan that you defaulted on.) After making on-time payments for the required number of months, your student loan servicing agency will update your credit history to reflect your new payment history.
Read more - What is a Credit Report?
