Just trying make sense of it all

[williamd1972]

I have 3 questions: 

1.  I took a parents loan out for my son in July of 2009(William d ford federal direct loan ) the loan amount was 25,000. The first installment(7000) came in the fall, when it first appeared on my credit report in November my scored increased 70 points. Fast forward to this week, I get another installment for the winter semester and  my equifax scored decreases by 7 points, is this common? And what type of his hit should expect for the spring semester?  

2. My first payment is due in may, should I get a deferment until my son graduates school or should I begin paying the interest? And if I decided to get a deferment for this years loan will it affect my score?

3. Does FASA check your credit score

[SCF]

Hi William, I'll grab your questions in order.

1. It sounds like the installments are counting as separate accounts on your report (this is normal) and that the first installment may have been your only (at the time) installment loan.  Adding an installment loan to your credit mix can increase your score, although I'm surprised it went up 70 points.  Adding the new account for the next installment may have lowered your AAoA slightly, and there is a ding for new accounts, so the 7 point loss sounds right, but you should recover it quickly.

2.  I would reccomend at least paying the interest while your son is in school.  If you don't pay it, it can really add up, and will be capitalized into your loan balance at the end of your deferment, which means that you'll wind up paying interest on your interest (no fun!).  Deferments do not affect your credit score.  The loan will usually show that you are defered, and read "Pays as agreed."

3.  No, the FAFSA is about your assets and ability to pay for/finance education expenses, your credit score doesn't come into it.  You lender may check your score seperately, however, before they give you a loan.

Hope that helps!