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rn2807
Posts: 1
Registered: ‎06-06-2013
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How does a Federal Parent Plus Student Loan for my son affect my credit?

Can anyone help me understand hoe a Parent Plus Student Loan affect my credit.  My son is going to college and I need to front 18,000 in federal loans.  How does this affect my FICO score and credit?  Any and all help is appreciated.

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llecs
Posts: 32,880
Registered: ‎08-04-2007
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Re: How does a Federal Parent Plus Student Loan for my son affect my credit?


rn2807 wrote:

Can anyone help me understand hoe a Parent Plus Student Loan affect my credit.  My son is going to college and I need to front 18,000 in federal loans.  How does this affect my FICO score and credit?  Any and all help is appreciated.


Welcome!

 

Any added loan or other credit item would have a temporary negative impact on your FICO due to the new account ding and potential change to your average age of accounts (AAoA). The balance really doesn't matter too much. FICO won't ding you for adding a $500k mortgage due to the balance, for example and likewise the $18k won't harm too much either. Installment utilization is very minor on FICO scoring. Assuming it were one loan that reports, then I'd guess a 20 or so loss with all of that going away within a year. If you had multiple SLs report, then the loss could be more; depends on the impact to your AAoA.

 

FICO aside, lenders tend to frown on new credit items reporting, but like with FICO it's temporary. If you were to apply for credit a year out I doubt if any lender would hold that loan or multiple loans against you. Your DTI would increase assuming you haven't increased your income to compensate for these. Some lenders frown on that until it gets paid off, but many creditors wouldn't care too much. Might be a future issue when applying for a car or mortgage, but it depends how high the DTI gets.

 

On the future payments of the loan, be sure you are in command of the payments. If he gets marked late, then you do too. If he defaults, then you do too. If he gets sued, then you could be too.....and vice-versa for your son.

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elaine54
Posts: 10
Registered: ‎04-18-2013
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Re: How does a Federal Parent Plus Student Loan for my son affect my credit?

I just wanted to say that I took out about the same amount in Parent Plus loans for my two college students and other poster is right only real effect is on your DTI ratio.  Your FICO will bounce back quickly if it goes down slightly when the loan posts.  Also, wanted to mention that these loans are not tied to the student at all.  It is strictly in the parent's name and the parent makes all payments. 

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llecs
Posts: 32,880
Registered: ‎08-04-2007
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Re: How does a Federal Parent Plus Student Loan for my son affect my credit?


elaine54 wrote:

Also, wanted to mention that these loans are not tied to the student at all.  It is strictly in the parent's name and the parent makes all payments. 


Thanks for the clarification. I tend to avoid SL-related topics.


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