The Correlation of Credit History and Student Loans

March 25, 2009 by  
Filed under Student Loans

A lot of ordinary student loan programs are not credit-based. Stafford student loans and Perkins student loans focus solely on students’ needs and do not even do credit checks. However, not everybody will be able to qualify and those student loan programs never completely cover the entire amount needed, most of all since the cost of education is quite high in our generation.

To work around this, a lot of students and their families wish to supplement them with credit-based student loans. When doing so, they must submit a good credit report to student loan evaluators to get a better edge at receiving the student loan, with great interest rates, to boot.

As with any student loan based on credit, bad credit student loans do not necessarily make things impossible, but they do make things much more difficult and usually come with a much higher interest rate.

Bad credit loan students can therefore make or break the decision of receiving student loans or even be the cause of more repayments than you would have had with good credit. But what does ‘good credit’ and ‘bad credit’ mean?

The first thing that student loan officers take a look at is the student’s FICO score. This is a number that credit agencies calculate based on a secret, proprietary formula. The exact equation is not known to the public, but there are several criteria that are known and relate to common sense.

FICO scores basically focus on the person’s debt and defaults, the amount of his late payments and how late those payments were, the credit available, the amount of recent credit inquiries, etc. All of these factors are weighed and weighted in various ways.

A lot of students don’t even have a FICO score yet because they do not own credit cards or have other forms of loan that would generate FICO score data. Because of this, students are mostly judged by the credit history of their parents, when it comes to granting student loans. Student credit history may be important, but it is the income and credit history of the parents that will really count in the final decision of granting student loans.

It is ideal for both students and parents to have good credit history. The higher the FICO score, the better. Having a low FICO score will make getting a student loan next to impossible and may trigger the submission of more information to influence the final decision. Getting this extra data to those involved is not exactly easy.

FICO scores aside, there are also other factors that prospective borrowers may take into consideration.

Making timely payments is always important. If you have a slew of late payments in your history, you will look like a bad credit loan student in the lenders’ eyes. Staying within the specified credit limits is also important. Try not to go over the limit to avoid penalties, and when you do, accept the responsibilities that come with it. Creditors do not just judge numbers, but characters, as well.

Make sure you meet all credit obligations and keep student loans at a modest level at all times to ensure that you give off the vibe of a good student loan candidate.

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