10-11-2012 06:01 PM
I have my kid in law school (his dream was to be a lawyer since the 10th grade) and he's in his second year now. I'm in debt around $74.000 on his loans so far. I'm worried that by the time he does finish school and I'm 200G's in debt my cards like AMX, Discover will kick me to the curb in fear. Right now my FICO's are in the 700 but I fear the deeper I go indebt for school the lower my scores due to UTL. Only thing I have going for me now is I pay my cards on time and keep my UTL as low as possible. And how will my Credit card company's look at me with this debit to income ratio factored in. Still new to this credit thing and how it all work's
10-11-2012 08:20 PM
The good news is that a high utilization on installment loans (like student loans) has nowhere near the impact of high util on revolving accounts (credit cards), so the impact on your FICO score will be minimal compared to say, maxing out your credit cards. In fact, unless you make a late payment on the loans, you probably won't notice any impact other than the small ding from the new accounts, which will go away as they age.
The less good news is that many lenders will also consider your debt-to-income ratio when they extend you credit, or re-evaluate for your account for whatever reason. If the payments on the loans are excessive for your income, then you will have a hard time getting a loan for big ticket items like a car or mortgage, and if your credit card companies have cause to re-evaluate your limit (or you ask for an increase), they may deny that request because of your existing debt burden.
If you're set on your credit needs until you think you can get those loans paid off, it may never be an issue, but if you're planning a big purchase during the loan term, and those payments will take up a significant portion of your income, you may want to consider what you can do to improve your debt-to-income ratio.