Knowing How Your Credit Works For You
Some college student loans utilized by students will require a credit check. It is very important that you understand how your credit history plays a role in your financial aid assistance and your financial needs for the future.
Your credit will play such a big role in your life, which is why having good credit, and making student loan payments on time, and minimizing your debt are so important.
Some Key Factors
There are three key factors that creditors look at when determining your student loan eligibility. These are generally referred to as the three C’s of credit:
• Character - This is your personal financial character (history), or a look at how you have handled your debt in the past. Have you paid your bills on time, do you pay them off early, or do you just not manage money so well?
• Capacity: Your ability to pay back your student loan based upon your income and total debt.
• Collateral: What types of collateral do you have to offer in exchange for a loan?
Lenders will reviewed this criterion simply by looking at your credit report. However, most lenders will use an electronic system that assigns a number to your credit score. The number you are assigned will tell them what type and how much credit you can receive. This technique is called credit scoring. A credit score will tell the lender how likely you are to pay back the student loan and adhere to the loan terms.
Credit Agency
Lenders will use a credit agency to obtain a credit report on potential clients. You will have the right to receive a copy of your credit report anytime. This will give you the opportunity to see what the lender is seeing. There are three national credit bureaus that will release your credit report when you have given permission. The three agencies are Equifax, Experian, and TransUnion.
Your Personal Credit Report
The following information will be included in credit history reports:
• Name
• Telephone Number
• Social Security Number
• Date of Birth
• Address
• Place of Employment
• Tax liens, judgments, and bankruptcies
• Current loan balances, original amount borrowed, amount of payment, status, and number of late payments
• All credit inquiries for the past 24 months
When negative issues are reported to the credit bureau it will stay on your credit report for seven years, with the exception of a bankruptcy, which will stay for 10 years. It is illegal for information regarding race, gender, religion, national origin, checking or savings accounts, medical history, purchases paid in full, and business accounts to appear on your credit report.
The Equal Credit Opportunity Act (ECOA) guarantees everyone has equal access to credit. It is illegal for the creditors to do any of the following:
• Discriminate against you due to sex, race, marital status, or national origin
• Ask if you are divorced or widowed
• Inquire about future plans to have children
• Not consider public income as reliable as any other form of income
• Not consider alimony, child support, or other payments as income
It is legal to ask for your personal information on any loan application, such as:
• Name
• Telephone number
• Social Security Number
• Employer
• Length of employment
• Marital status
• References
• Current income
• Prior debt
• Current debt
• Bank account balances
Understanding how your credit works for you will only help you make the right decisions about finances in the future and keep you on track with your student loans.
