Credit Basics for Student Loans

Credit bureaus do not approve you for a loan, but they do provide lenders with copies of your credit report. This is what most lenders use to base their decision on for whether they are going to grant you credit or not. Credit bureaus do not make the decision for the lenders. It is up to that lender to decide what the acceptable criteria is for them.

Payments must be at least 30 days late before they can appear on your Credit Report. Even though a payment made within this timeframe may not show up on your credit report, late payments can cause a number of fees or increases in interest rates with the lender directly. Therefore, it is best to pay your bills as soon as possible or in a timely manner after receiving them.

A lender will refer to your credit report to see if you are the type of person who will repay the loan, in full, within the time specified. While searching your credit report, lenders are looking for information that suggests you pay your bills on-time. Even if your credit report has up to two late credit card payments or one late installment payment, you can still have a credit score that is good, meaning you may be likely to still get a loan. However, if your credit report shows late payments of 60 days or more, late mortgage or rent payments, or outstanding debts (such as judgments or liens), you may fall into the bad credit category which will make it hard for you to receive a loan.

A lender will also look at your existing debt to make sure that repaying the loan you are about to take on is within your means. Most lenders say that non-mortgage debt payments should not exceed 10-15 percent of your take home pay each month. If your debts are currently exceeding this percentage, you may want to pay some of the remaining debts off before you apply for another loan.

Lastly, every time someone other than yourself requests your credit report, a note of that request is made on the report itself. If there are a large number of requests within a short period of time, the lender may think that you are applying for a loan because of financial difficulty or you are taking on more than you can handle.

In the United States, Equifax, Experian, and Trans Union are the three major credit bureaus that provide nationwide coverage of consumer credit information. Many national lenders report consumer credit information to all three. However, smaller banks, most credit unions and other credit grantors may report to only one, or none. Therefore, the information you receive from one credit bureau may not be the same as what you would receive from another credit bureau.

Credit is the reputation you have earned for paying your bills on time that makes it possible for you to receive loans, etc. with the understanding that you will pay for them later.

If you are looking for a loan, credit card, or low interest rates, having good credit will increase your chances of getting one of these. If you have credit problems, it may be hard to acquire a loan when you need it the most.

A lender figures your credit score (FICO score) by taking your credit history and measuring it against a database of habits in the general borrowing population. That, in turn, determines whether your tendencies match those of borrowers who default on debt, declare bankruptcy or find themselves in various types of financial difficulties.

When determining how high a credit score will be, the following five characteristics typically separate good credit from not-so-good credit:

• Late payments in the past. People who have failed to make timely payments in the past are more likely to do the same in the future.
• How you have used your credit in the past. If you have one or more credit cards that are maxed out or close to it, you are more of a risk than a person who has a high limit but is not anywhere close to using it up.
• The length of your credit history. People who have had credit for a long time generally pose less of a borrowing risk.
• The number of times you have applied for credit. The number of times you have applied for loans, credit cards or other debt instruments may count against you when wanting to receive yet another loan.
• The number of different types of credit you have. Someone with a combination of installment and revolving loans is generally less risky than someone who has only a secured credit card.

Credit scores are a number roughly between 300 and 800. A number higher than 660 will almost guarantee a consumer a loan. Anything between 620 and 660 is not bad either, but a consumer may need to convince the lender that a loan to them would be worth it. If a credit score is below 620, receiving a loan may be difficult.

Of course, exceptions are sometimes made if the credit report has incorrect, incomplete, or not enough information on it. An unusual event, such as a job loss or extended sickness, may excuse borrowers as well, depending on the lender.

APR stands for Annual Percentage Rate. The APR on a loan includes the costs involved in securing the loan such as the interest rate, points and other related fees you will be paying annually. The APR is meant to provide you with a rate to use when comparing loans.