topic Re: First Time Student Loan in Understanding FICO® Scoring

First Time Student Loan

Anonymous — Thu, 16 Aug 2018 07:16:26 GMT

Hi All,

I am due to accept student loans for the upcoming fall semester and have zero experience with the student loans. I would like to know what impact can I expect on my report/fico8/9 when the loan starts reporting?

Currently, I have several cc, but no installment accounts.

It is a Fed Stafford loan (unsubsidized) @ 7.06%, if that matters.

Ps, another fico member has the same question, So by answering this, you would be helping 2 prospective students

@GeePee

Regards,

Dhi

Re: First Time Student Loan

Anonymous — Thu, 16 Aug 2018 13:30:46 GMT

Can you confirm that you have no closed installment accounts either? So basically no loans, closed or open?

If so you guys could be a big help to the broader community by testing this out. We'd need you to....

* Pull your reports once a week (easy to do with Credit Karma)

* Keep your credit card amounts reporting to the bureaus stable That means always having the same pattern of balances reporting. A simple way to do that is to implement AZEO (all zero except one, with the remaining card reporting a small balance).

* After AZEO is fully implemented (but before the loans appear) pull all three of your FICO 8 scores (you can do this for a $1 at Credit Check Total).

* After the loans appear pull your scores one more time. (But make sure you are still in AZEO with the same low utilization.)

There is a good thing that will happen and a bad thing when your loans first report:

(Good) You will go from no loans of any kind, closed or open, to one open loan

(Bad) You will have for the first time a high installment utilization (you will owe 100% of the loans)

I am guessing that the good will be much greater than the bad. But we can't know without someone giving us test data. Would you and your friend help?

Re: First Time Student Loan

Anonymous — Thu, 16 Aug 2018 15:13:58 GMT

@Anonymous wrote:
Can you confirm that you have no closed installment accounts either? So basically no loans, closed or open?

If so you guys could be a big help to the broader community by testing this out. We'd need you to....

* Pull your reports once a week (easy to do with Credit Karma)
* Keep your credit card amounts reporting to the bureaus stable That means always having the same pattern of balances reporting. A simple way to do that is to implement AZEO (all zero except one, with the remaining card reporting a small balance).
* After AZEO is fully implemented (but before the loans appear) pull all three of your FICO 8 scores (you can do this for a $1 at Credit Check Total).
* After the loans appear pull your scores one more time. (But make sure you are still in AZEO with the same low utilization.)

There is a good thing that will happen and a bad thing when your loans first report:
(Good) You will go from no loans of any kind, closed or open, to one open loan
(Bad) You will have for the first time a high installment utilization (you will owe 100% of the loans)

I am guessing that the good will be much greater than the bad. But we can't know without someone giving us test data. Would you and your friend help?

Yes, No installment loans open or closed. I have 6 revolving/credit trade lines and that's all (no baddies). I would love to help by providing data points.. PS I had always been AZEO excluding this month. Wish I did not change my auto pay date on AMEX.

Re: First Time Student Loan

Anonymous — Thu, 16 Aug 2018 20:22:21 GMT

I have student loans that have not entered repayment yet, and one small $2000 loan from Sallie Mae I have paid off. I have yet to get my score over 780. I have a car loan at 40% paid off, and a car loan paid off. Oldest account 5 years 8 months. AAoA 2 years 2 months. Each semester that my loans disperse I lose approximately 5-10 points on Credit Karma... but that doesn't say much for FICO. I would assume your score will see a slight drop, but probably no more than 10 points.

Re: First Time Student Loan

Anonymous — Thu, 16 Aug 2018 20:24:43 GMT

@Anonymous wrote:
@Anonymous wrote:
Can you confirm that you have no closed installment accounts either? So basically no loans, closed or open?

If so you guys could be a big help to the broader community by testing this out. We'd need you to....

* Pull your reports once a week (easy to do with Credit Karma)
* Keep your credit card amounts reporting to the bureaus stable That means always having the same pattern of balances reporting. A simple way to do that is to implement AZEO (all zero except one, with the remaining card reporting a small balance).
* After AZEO is fully implemented (but before the loans appear) pull all three of your FICO 8 scores (you can do this for a $1 at Credit Check Total).
* After the loans appear pull your scores one more time. (But make sure you are still in AZEO with the same low utilization.)

There is a good thing that will happen and a bad thing when your loans first report:
     (Good) You will go from no loans of any kind, closed or open, to one open loan
     (Bad) You will have for the first time a high installment utilization (you will owe 100% of the loans)

I am guessing that the good will be much greater than the bad. But we can't know without someone giving us test data. Would you and your friend help?
Yes, No installment loans open or closed. I have 6 revolving/credit trade lines and that's all (no baddies). I would love to help by providing data points.. PS I had always been AZEO excluding this month. Wish I did not change my auto pay date on AMEX.

Ask your friend if he or she could adopt AZEO as well. Hopefully you can both get a month of AZEO in, then pull your scores -- before the loans appear.

Thanks!

Re: First Time Student Loan

Anonymous — Fri, 17 Aug 2018 17:19:47 GMT

@CreditGuyInDixie I dont know the other fellow fico forum member in person, she/he had same doubt like mine thats all the relation I have with her/him.

PS, I did accept the finacial aid award today for 9K$ for fall intake and 9K for Spring intake, Though I need not take so much I did it because I did not want my loans utilization show 100%. So Once the funds are avaiable to me after tution fee balance I will payback making my utilization look 45%-60%.

If you have any other suggestions please let me.

Re: First Time Student Loan

Anonymous — Fri, 17 Aug 2018 17:22:49 GMT

@Anonymous wrote:
I have student loans that have not entered repayment yet, and one small $2000 loan from Sallie Mae I have paid off. I have yet to get my score over 780. I have a car loan at 40% paid off, and a car loan paid off. Oldest account 5 years 8 months. AAoA 2 years 2 months. Each semester that my loans disperse I lose approximately 5-10 points on Credit Karma... but that doesn't say much for FICO. I would assume your score will see a slight drop, but probably no more than 10 points.

When I spoke to financial aid person at school they mentioned there is no penalty for repayment when in school. Is it better to pay back the interest amount say 20$ every month when in school so that the principal is never capitalised with the interest? What are your thoughts on repayment of student loan.

Re: First Time Student Loan

Kree — Fri, 17 Aug 2018 17:24:59 GMT

This is not confirmed, but based upon my personal experiences, I do not think student loan utilization counts toward the standard installment utilization scoring. I have 12 student loans totaling 100k, all of them are above 100% uti. But my scores are still decent. A few months ago I even had 750s.

Re: First Time Student Loan

Anonymous — Fri, 17 Aug 2018 18:31:37 GMT

Hi Kree. Are your student loans in deferment?

It's easy to have a 760 FICO 8 score and be at 100% installment utilization. The difference between 100% and 5% IU varies from profile to profile, but it is typically 25-40 points. CC utilization, in contrast, has a huge impact. If someone had a total CC utilization of 98% compared with 5% that person would take a gigantic hit. A 760 would be basically impossible.

Re: First Time Student Loan

Kree — Fri, 17 Aug 2018 18:42:19 GMT

@Anonymous wrote:
Hi Kree. Are your student loans in deferment?

It's easy to have a 760 FICO 8 score and be at 100% installment utilization. The difference between 100% and 5% IU varies from profile to profile, but it is typically 25-40 points. CC utilization, in contrast, has a huge impact. If someone had a total CC utilization of 98% compared with 5% that person would take a gigantic hit. A 760 would be basically impossible.

They are not in deferment. Interesting to know that it is only 25-40 point difference. Perhaps I am incorrect about it not counting.

Re: First Time Student Loan

Anonymous — Fri, 17 Aug 2018 18:55:20 GMT

Can you confirm that these are indeed loans on which you have to pay interest while in school? For some kinds of student loans, the US govt pays the interest.

Re: First Time Student Loan

Anonymous — Fri, 17 Aug 2018 20:41:21 GMT

@Anonymous wrote:
Can you confirm that these are indeed loans on which you have to pay interest while in school? For some kinds of student loans, the US govt pays the interest.

Yes, So the course I applied is a graduate course, So I will be only able to apply for federal unsubsidized loans or Fed graduate plus loans (this requires credit check).

Unsubsidized are loans which accrue interest from the date of disbursement and has to be paid by the borrower.

Subsidized are loans which don't accrue interest/if accrued interest from the date of disbursement government pays for it.

The reason I did for not applying for Fed Graduate plus is that it wanted credit check and the interest rate at 7.02%

Re: First Time Student Loan

Anonymous — Fri, 17 Aug 2018 21:24:24 GMT

Hi DHI. In that case I like your idea of paying them down a bit early.

I am surprised that you are permitted to use the loan amount itself to pay back a portion of the loan. (Your idea of taking out a loan for 9k and then using 4k of it to pay off the loan.) Strictly speaking “All loan funds must be used for your education expenses" (quote from the Office of Federal Student Aid). Making payments on loans is not an education expense.

On the other hand, it sounds like in practice you could only get in trouble if you were engaged in grossly fraudulent use of the money (going on vacations, etc.). I am basing both the theory and practice on articles like this:

https://studentloanhero.com/featured/what-can-i-spend-student-loans-on/

You might want to ask the folks in the student loan room here on the forum just to be sure.

If you do make an early paydown, we'd very much appreciate it until you wait until after the loans report at 100% (95% is fine too) so that we can hear what the scoring impact was.

After your initial paydown, a monthly payment of $2 seems reasonable, which would produce regular monthly activity on the account.

Re: First Time Student Loan

MakingProgress — Fri, 17 Aug 2018 22:00:08 GMT

CGID

My daughter will be having student loans appear for the first this fall. The only thing on her report right now is my cap 1 QS that she is an au on. Would her info be a good data point for you?

Re: First Time Student Loan

Anonymous — Fri, 17 Aug 2018 22:21:24 GMT

Nice to hear it, but it will be less valuable because her profile is so different and less stable than most peoples:

* No accounts in her own name

* Exactly 1 account on the report ( thus very thin)

Contrast that with the profile of our OP, which consists of five CCs, all in his own name.

It will be easier in his case to isolate the precise effect of going from no loans of any kind (open or closed) -- but with several cards -- to the same profile plus an open loan on which he owes most/all of the amount.

Re: First Time Student Loan

Anonymous — Fri, 17 Aug 2018 23:00:31 GMT

@Anonymous wrote:
Hi DHI. In that case I like your idea of paying them down a bit early. True, I read 100% utilization may affect or may not affect scores adveresly but it is something that bothered me.

I am surprised that you are permitted to use the loan amount itself to pay back a portion of the loan. (Your idea of taking out a loan for 9k and then using 4k of it to pay off the loan.) Strictly speaking “All loan funds must be used for your education expenses" (quote from the Office of Federal Student Aid). Making payments on loans is not an education expense. Well, I mean technically I need money to sustain myself while I study because I dont have a fulltime job. Its just that I have accounted my finances of stay and transportation etc into my wifes budget so I wouldnt have to touch Fed loan money and pay 6.6% on it.

On the other hand, it sounds like in practice you could only get in trouble if you were engaged in grossly fraudulent use of the money (going on vacations, etc.). I am basing both the theory and practice on articles like this:

https://studentloanhero.com/featured/what-can-i-spend-student-loans-on/

It is illegal if I use that money for other activities like Vacation or investing in stocks or elsewhere. But trust me I am not a risk taker.

You might want to ask the folks in the student loan room here on the forum just to be sure.
I did Speak to them, they mentioned there is student loan reduction that I can apply for before accepting and I did. As per Cost of attendance from my college I shall spend close to 6K for tution fee and 5K for books/accomodation/transportation but I can avoid that 5K cause I have my wife supporting me with rents and we live walking distance from university.

If you do make an early paydown, we'd very much appreciate it until you wait until after the loans report at 100% (95% is fine too) so that we can hear what the scoring impact was.
Yes I would like to wait too because I am not sure what other educational expenses are my way.

After your initial paydown, a monthly payment of $2 seems reasonable, which would produce regular monthly activity on the account.
Yes, I was thinking more of $15-$20. So, that my principal is lowered by couple of hundred bucks end of the year and so on for the following years.

Re: First Time Student Loan

Anonymous — Mon, 10 Sep 2018 02:49:44 GMT

My loans finally reported last week; it's my only installments. I have no other open installments reporting. I have one closed installment that reports. My scores increased 20-34 points yesterday (different for each bureau).

Was expecting it to go the other way.

No, I'm not at AZEO right now, and likely won't be for the remainder of the year.