05-20-2011 08:47 PM - edited 05-20-2011 08:48 PM
1) I'm heading into my sophomore year of college and I am wondering how new student loans will affect my credit score. Do they lower it? Does paying the interest on them help my credit in any way? Will they affect my ability to get a credit card? I currently do not have a CC and I want one to help build my credit. Almost a year ago, before I knew anything about my credit, I had a negative item on my credit report I had no idea was there...I stupidly applied for several student-focused credit cards and was declined for all of them, then I paid off the collection and the agency removed it from my report (whoo!) now I'm waiting for those inquiries to be 12 months old before applying again. Will having new student loans affect whether a company would consider me for a CC? Will they consider me overextended?
2) In 3 months, an auto loan I cosigned for (I wish I had never done this, but so far the payment history has been perfect) will become 3 years old. It was my first and so far only item on my credit report that is actually paid monthly, and I hear that having an account open for at least 3 years is a good thing. Will this raise my credit score?
3) Will my score raise when the inquiries become 12 months old?
05-21-2011 08:10 AM
1) Typically new TLs will drop your score, though any drop is temporary and most of the point would return within 6 months and the remainder by a year. On avg. I've lost 20-25, though in my case AAoA was impacted or I was rebucketed causing a greater loss. I bet you won't lose more than 20 with 15+ returning inside 6 month. Purely a guess and YMMV based on your credit.
Paying the interest won't help your FICO, on that alone, because installment utilization is a very tiny part of FICO scoring. In other words, if you paid it from $x down to $10 tomorrow, I bet you wouldn't see a score change. On the flip side, you will gain points over time, and not even notice it, as this TL gets older and eventually will help your length of history.
It may impact your ability to get a CC in the beginning because lenders don't like to see new inquiries or new TLs reporting, but in a few months that will fade away. I do recommend a CC, though. IMO, try for a secured CC first. I bet you'd see a big increase in score when it first reports. They probably won't see you as overextended, though some CCCs will look at your ability to repay in relation to your income.
2) A 3 year old TL will help if your avg. age of accounts is less than 3 years. It also helps if this is your oldest. I recommend saving up $$$$ to have the ability to PIF if you had to for that car. If the other person defaults, then you do too.
3) IMO, no, your score won't increase at 12 months due to the inquiries no longer being scored by FICO, though if you have any reporting TLs that 12 months old, then I'd expect a bump.