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February 17

Credit Scores

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  What does it mean?

      Your lender will use this tool to measure if you will pay what has been agreed. If your score is lower, means you will be more likely to default on your debt, and vice versa. For most of the lenders, this process is the more reliable to determine the eligibility for private student loans.

      Unlike the government loans, your credit score would affect the amount of your debt, due the lower interest rates and fees are reserved for those with better credit scores.

      According to the most used, FICO (Fair Isaac Corp.), this Credit Score is based on:

Score Component Weight
   Payment History 34%
   Amounts Owed 29%
   Length of Credit History 14%
   New Credit 9%
   Types of Credit Used 9%
   Recency, frequency and severity 5%

  How is it use?

      Even when the FICO process is the most use to determinate the eligibility, the conception yes/no decisions is another way to evaluate the applicants.

      In order to get a Private Loan, your FICO score must pass 650 of punctuation. Commonly, 90% of borrowers have this punctuation, and just 23% of borrowers can get a 760 of punctuation. The average score is 710. But do not be worry; because not all private loans depend on credit scores, some are based on the GPA, majors, reputation, etc.

      Most of the lenders divide their interests and fees in 5 levels, according to the credit score. The best rate is gotten by 20% of the borrowers, and continuously the 35%, 20%, 15% and 10%. Each level varies from the next one in 1% or 2%.

      This following table shows how much your interest rate will be depending on your FICO scores, as lower the FICO score, the lower the loan limits;

FICO Store Interest Rate
   770 or higher    LIBOR + 2.3%
   740 to 769    LIBOR + 2.75%
   690 to 739    LIBOR + 3.95%
   660 to 689    LIBOR + 6.45%

      Besides, a cosigner with a better credit score will be useful, if you have either a low credit score or a good credit score, because of he or she might reduce the interest rate and fees that you will pay. In addition, if you want to get a better rate is accepting to repay immediately or while you are in school.

      If you have been denied to get a private loan, do not give up and ask for their appeals process. You could have a second chance, and show that some wrong information has been processed as same as to demonstrate that any negative event will not occur.

      A tip that you have to consider is the excessive using of credit cards because could affect your interest rates and fees; while if you keep a good credit score will save you thousands of dollars in interest.

  How is it affected by Loan Applications?

      Every time you apply for a loan and get it, you will be reducing your credit score. This is due to those appliers with 5 or more loans have more tendencies to declare bankruptcy than those with none.

      Also, those loans for auto and mortgages will reduce your credit score, so the best you can do, starting from now, is not to apply for many of those loans and during short time periods.

  What is Credit Reporting?

      There are agencies that report all the Education Loans you apply for, to the biggest credit reporting agencies, such as Equifax, Experian and TransUnion.

      So, if you have a great background file of your student loans, it might give you eligibility for other forms of credit. But in return, these agencies will put on sale your contact and personal information to other lenders.

      This could be good, because the offers for you will be contacted by many education lenders and you will find out an opportunity, but at the same time, you will have full of marketing materials.

  How to improve your Credit Score?

      There is no magic to improve your credit score but here you will find some tips to get a better one. All must be based on avoid all the negative and incorrect information of your report correcting it, but do it paying attention and selecting what you think is the most important or would get impact in your report, even when it means negative but correct information.
-   Pay your bills on time continuing paying.
-   Keep active your account doing regular payments as has been agreed.
-   Keep open your accounts even if you do not use them because this will generate a positive impact on your records.
-   Reduce the use of credit cards maintaining low balances and choosing installment loans as a better form of debt.
-   Reduce you debt through installment loans.
-   Avoid reaching the limit of your credit cards.
-   Prevent opening new accounts that you do not need or use.
-   Do not declare bankrupt because this will be affected by 7-10 years.

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