Most students would not have had much opportunity to build their credit history by the time they are ready to start college, which begs the question – will this make it that much more difficult to get a student loan? If you do manage to get a loan with no credit history, will that affect your credit score? We’ve put together the most frequently asked questions about the relationship between credit scores and student loans. We also help you understand which type of loan requires that you pay the interest accumulated during college.
Q – Do I need to have a good credit score to get approved for a student loan?
Your credit history does not matter for federal student loans. The federal government takes many factors into account when calculating the amount of aid you are eligible for but credit history is not one of them. It is not even considered when calculating the interest on the loan. All federal loan applicants pay the same rate of interest, irrespective of their financial profile. The same does not apply for private student loans.
For private student loans, your credit history is the key factor that impacts not just your chances of getting approved for the loan but also the interest rate you are offered. The better your credit score, the higher your chances of getting approved for a private student loan and the lower the rate of interest you will pay. Without credit history (or with bad history) you will probably require a co-signer to get approved.
Q – Which credit scores do lenders use to determine my eligibility for a loan?
The majority of private lenders use FICO credit scores to determine whether or not to approve loan applications, and at what interest rate.
Q – Which type of loan requires that you pay the interest accumulated during college?
You pay the interest accumulated during college on unsubsidized federal loans. These are low-cost student loans that the federal government offers both undergraduate and postgraduate students while they are still in school. When you take an unsubsidized federal loan, it is your responsibility to pay back the capital as well as the interest that accrues on the loan during your college tenure.
Q – How do student loans affect my credit score?
As a student, you would not have had the opportunity to build your credit score. But you can now use your loans to get off to a good start. Make your monthly payments on time, every time, without any delayed or missed payments, and you will start to build good credit history. This in turn will help you get approved for future loans more easily and at a lower interest rate too.
Every time you miss a payment, you get a black mark against your credit score, which can then make it so much more difficult to get approved for any future loans.