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Credit repair while still a student - question about loans and effects on score


SecretAgentWoman
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I'm currently desperately trying to raise my credit score enough to qualify for a manufactured home loan next year.

I'm doing the disputes to CRAs & CAs, and have already seen 4 deletions.

I'm very fortunate that other than some more recent medical collections, 90% of bad credit dates back from divorce in 2000 and will naturally drop off this year! The medicals I will negotiate with each individually, and I can only cross my fingers.

3 years ago I started going back to school. I stopped for a while, long enough to have to start making payments. I paid every single payment on time, even if I had to eat ramen for a month. :) That generated a teansy weensy amount of good credit.

In addition, I have had a secured credit card for 6 months now that I pay off in it's entirety each month on time without fail. Just last month I took out a secured loan with my bank as well, and am making double payments so my 24 month loan will be paid off in 12 months.

The thing is, I returned to college. I naturally qualified for a deferment for my original school loan, which was half paid. I am now generating MORE school loans to the tune of about $6500 a year. I'm afraid that my debt ratio will skyrocket, and that the fact I am in deferment and not actively paying will no longer give me the extra edge.

My questions are thus:

Should I reinstate my payments?

Should I try my hardest not to borrow? Because the money is really helpful to this single mom of three kids!

Do high student loan balances effect you negatively, or it offset at all by the fact you will probably get a better job with higher pay in the end?

Do they look at the year you will graduate at all to see you probably won't be required to pay for years?

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No offence, but it's kinda disapointing this was moved because I feel 1) it has everything to do with my credit repair, and nothing to do with the loans themselves (only how I go about it) and 2) sorry, but your student loan forum is a ghost town all the way at the bottom so I don't anticipate any replies.

:?

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Just from my similar experience (bad credit, then back to school):

Should I reinstate my payments?

No reinstating needed. You can make a payment at any time. The website is usually the easiest way. Make payments to any UNSUBSIDIZED loans you have before subsidized because you are paying current interest on the unsub. loans and it compounds. Subsidized loan balances won't budge due to the gov't paying interest.

If you can make loan payments at all, great. But due to low interest and deductible status, I'd suggest paying any credit card / vehicle loans & any absolute necessities first.

Should I try my hardest not to borrow? Because the money is really helpful to this single mom of three kids!

Absolutely. This is always true. Unless you are using the money in a way that puts you ahead (ie- borrow it at 6% and lock up in a mutual fund at 10%). But this money need to be safe, which usually has lower yields. Plus, you'll pay tax on cap gains, which will reduce gains anyway. Not to mention the funds are supposed to be allocated to educational expenses. But don't be afraid to borrow if you absolutely need it because educational debt is always a worthwhile investment (your earning capability will increase).

Do high student loan balances effect you negatively, or it offset at all by the fact you will probably get a better job with higher pay in the end?

Still in grad school, but my loans are mounting and my score has still been increasing. I suspect student loans are viewed favorably over consumer debt. Its possible that the FICO scoring algorithm prefers student loan debt for the rationale you stated. No one knows but Fair Isaac since its proprietary.

Do they look at the year you will graduate at all to see you probably won't be required to pay for years?

Don't know, but curious about this myself. Your balances are relatively small at $6500/year, so all you can do is try to borrow as little as possible and get graduated. Then hopefully your earnings will jump enough that the monthly loan payment & mortgage payment is within your means.

Good luck.

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Wow, thanks for your experience! It has really helped, given me food for thought. I was most concerned about my effect of debt ratio of student loans upon my scores, hopefully my experience will be helpful to others. I'll have to find out if they dismiss the idea of including student loan payments in my overall monthly payment to income ratio, too. We'll see.

BTW, I will have my car paid off before then and have no other debt. :)

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There is a small FICO hit for debt ratio on installment loans, but the biggest one (and the one everyone talks about) is for credit cards.

I would avoid using student loans as much as humanly possible, but obviously not at the expenses of adding higher-interest debt to do so.

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