topic Re: Should I Take Out Student Loans Even If I Don't Have To? in General Credit Topics

Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Fri, 01 Sep 2017 14:36:42 GMT

I took a 1 year hiatus from college, and am currently re-enrolled. My first 2 years at school, I took out an 11k loan which I paid off in the year I was out. My credit scores shot up, and I became elligible for a few credit cards with decent credit limits. Since re-enrolling, I've charged the cost of tuition to a credit card, and have occasionally utilized balance transfers to keep my individual credit card utilizations modest.

However, I read that it's possible that your credit scores can stagnate or even fall if you keep only one type of loan/credit balance. Lenders would like to see that you can juggle different types of debt like car loans, mortgages, student loans etc. My only debt would be the credit card bills that I pay every month, so would it have been better to just take out loans and pay that off so it looks like I can handle credit card debt and student loan debt?

Overall my credit isn't bad, last time I checked my Fico scores I was at 730+ across the board, my credit history is short (< 4 years) so I can't do anything but wait, but I wanted to know if that was a step that should be taken to improve my credit scores even further. (I'm 21 and live in NYC with my parents, so car loans and mortgages aren't the kind of things I'm ready to take on yet, but I will soon!).

Re: Should I Take Out Student Loans Even If I Don't Have To?

mitchblue — Fri, 01 Sep 2017 14:48:22 GMT

From someone who hated every minute of his student loan I'd say no. Not unless it's needed to get your education. Probably better to go the secured loan route. If score is a concern.

Edit: I have just 1 loan, a car loan. I don't believe 2 helps any if you already have one.

Re: Should I Take Out Student Loans Even If I Don't Have To?

MrDisco99 — Fri, 01 Sep 2017 15:23:55 GMT

Probably not the right forum for this question, but...

Will you make good enough use of that money to be worth the interest it will cost you over the term of the loan? Is a few points on your credit score worth that interest? Only you can answer that.

Re: Should I Take Out Student Loans Even If I Don't Have To?

K-in-Boston — Fri, 01 Sep 2017 16:07:26 GMT

To maximize your score you'll want one active loan reporting and 3 or more (some say 5 is the best balance) revolving credit card accounts. A Share Secured Loan through a credit union is certainly the option that would cost you the least amount in interest, since you'd want to pay back nearly all of it right off the bat, then carry the remaining tiny balance and pay it off over years. If you can afford to pay for college out of pocket (and kudos to you for being able to do that!) and don't need to take out loans, it would be pointless to pay that kind of interest on them just to boost your score.

Re: Should I Take Out Student Loans Even If I Don't Have To?

RobertEG — Fri, 01 Sep 2017 18:34:58 GMT

Are you asking whether you should take out a student loan and then not use it for the stated purpose (i.e., education)?

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Fri, 01 Sep 2017 19:44:47 GMT

NO, dont take a loan just for a score at this time! You are 21 and back in school. You are 'over thinking it'.

Just keep up with your current cards and do school. If anything buy a car with a loan! haha.

You can worry about any sort of loan when you are done with school.

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Fri, 01 Sep 2017 19:48:07 GMT

A few folks have suggested that our OP explore using the Share Secure Loan Technique. That sounds like a great fit for our OP, as he describes his situation. He can read more about it here -- only needs to read the first 2-3 posts.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secure-technique/m-p/4506756

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Fri, 01 Sep 2017 19:56:41 GMT

No. Never take out a student loan unless you genuinely need it for your educational expenses or cost of living while you are in school.

If you want a loan for credit mix, get a share secured loan through a bank or credit union.

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Fri, 01 Sep 2017 22:45:20 GMT

This would be a horrible decision to make soley to try and improve your credit scores. There are many ways to do that without taking a loan out. The only reason you should take a loan out is if it improves your financial situation in the long term. For example, if you can get a rate at or below the rate of inflation (~3%), then yes, a loan would probably be a wise choice, as you can put your money elsewhere that will earn more. I have zero debt, except for a student loan I keep becaues the rate is only 2.6%, and I'd rather invest my money than pay it off. Just be financially smart, and credit will come with that. Don't focus on getting good credit, focus on being financially savvy and the rest follows.

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Fri, 01 Sep 2017 23:51:00 GMT

Hi Dustin! That was a very thoughtful post.

The only exception to what you said about loans (as a credit strategy) would be the SSL technique that a few other folks have mentioned. The borrower only pays a couple dollars a year in interest. It's a good fit for people who have no open installment loans and credit scores in the 700s (or less).

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Sat, 02 Sep 2017 01:48:37 GMT

@Anonymous wrote:
Hi Dustin! That was a very thoughtful post.

The only exception to what you said about loans (as a credit strategy) would be the SSL technique that a few other folks have mentioned. The borrower only pays a couple dollars a year in interest. It's a good fit for people who have no open installment loans and credit scores in the 700s (or less).

It's a myth that you need installment loans for a high credit score. Credit cards alone will do it. Staying out of debt is sound financial advice, with some exceptions (mortgage is one). Simply by having a nice mix of cards and raising the limits, always pay the balance off, and never miss a payment, the credit scores will take care of themselves.

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Sat, 02 Sep 2017 01:41:30 GMT

@Anonymous wrote:
@Anonymous wrote:
Hi Dustin! That was a very thoughtful post.

The only exception to what you said about loans (as a credit strategy) would be the SSL technique that a few other folks have mentioned. The borrower only pays a couple dollars a year in interest. It's a good fit for people who have no open installment loans and credit scores in the 700s (or less).
It's a myth that you need installment loans for a high credit score. Credit cards alone will do it. Staying out of debt is sound financial advice, with some exceptions (mortgage is one).

It's a fact that credit mix is 10% of your FICO score. I'm sure you can do it on credit cards alone, but you have to raise the other four factors of a credit score to make the 10% credit mix irrelevant. That, I would think, takes a lot of time.

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Sat, 02 Sep 2017 01:59:09 GMT

@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
Hi Dustin! That was a very thoughtful post.

The only exception to what you said about loans (as a credit strategy) would be the SSL technique that a few other folks have mentioned. The borrower only pays a couple dollars a year in interest. It's a good fit for people who have no open installment loans and credit scores in the 700s (or less).
It's a myth that you need installment loans for a high credit score. Credit cards alone will do it. Staying out of debt is sound financial advice, with some exceptions (mortgage is one).
It's a fact that credit mix is 10% of your FICO score. I'm sure you can do it on credit cards alone, but you have to raise the other four factors of a credit score to make the 10% credit mix irrelevant. That, I would think, takes a lot of time.

10% is insignificant, and he wont be hit the full 10%. He'll be hit ~5%, thats not a big deal at all. By simply getting a good card mix, always paying off the balance, never missing a payment, and getting his limits increased he will head towards 800, trust me I've seen it done time and time again on just credit cards. Don't miss the forrest through the trees. All you require is a 760 for the best terms. At such a young age, he should be focusing on staying out of debt and getting money invested where possible. Financial soundess and good credit will follow. Go look at the community where people are retiring by 30, they aren't doing it by going into debt. I understand people that have gone through severely damaged credit are looking for every single angle they can get to get their scores raised. That's not the case here, he's starting with a blank slate. As long as he pays his bills on time and never carries a balance, he'll be golden. The key is to avoid the pitfalls most go through -- collections, late payments, credit card debt, etc.

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Sat, 02 Sep 2017 01:57:02 GMT

@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
Hi Dustin! That was a very thoughtful post.

The only exception to what you said about loans (as a credit strategy) would be the SSL technique that a few other folks have mentioned. The borrower only pays a couple dollars a year in interest. It's a good fit for people who have no open installment loans and credit scores in the 700s (or less).
It's a myth that you need installment loans for a high credit score. Credit cards alone will do it. Staying out of debt is sound financial advice, with some exceptions (mortgage is one).
It's a fact that credit mix is 10% of your FICO score. I'm sure you can do it on credit cards alone, but you have to raise the other four factors of a credit score to make the 10% credit mix irrelevant. That, I would think, takes a lot of time.
10% is insignificant, and he wont be hit the full 10%. He'll be hit ~5%, thats not a big deal at all. By simply getting a good card mix, always paying off the balance, never missing a payment, and getting his limits increased he will head towards 800, trust me I've seen it done time and time again on just credit cards. Don't miss the forrest through the trees. All you require is a 760 for the best terms. At such a young age, he should be focusing on staying out of debt and getting money invested where possible. Financial soundess and good credit will follow. Go look at the community where people are retiring by 30, they aren't doing it by going into debt.

I'm sure you can do it on credit cards alone

Re: Should I Take Out Student Loans Even If I Don't Have To?

Anonymous — Sat, 02 Sep 2017 02:38:58 GMT

Hi Dustin. Just for clarity, nobofy that I know is saying that it is not possible to have a good credit score without a loan. Everyone will agree with you that with half a dozen cards and enough time you will eventually cross over 800 (or 760).

What I mentioned was a very narrow specific strategy, which does not involve "going into debt" -- unless you meant to include having a loan on which you owe a balance of $40 and pay 1-2 bucks in interest per year.

That specific strategy involves extrmely low debt, almost no interest, and a credit boost of roughly 30 points to a person's score. (Also no hard pull.) While a person can eventually hit 800 without any loans, you'll cross over it substantially sooner if you use the SSL technique.

Re: Should I Take Out Student Loans Even If I Don't Have To?

Tazman81 — Sat, 02 Sep 2017 13:13:56 GMT

For the OP, just wanted to ask a clarifying question. Are you charging your tuition and then paying it off so that you are not charged interest by the credit card company?

If you are NOT able to pay off the tution that you charge to your credit card without paying interest, then yes, you should take out student loans. It's highly likely the interest you pay on your student loan is substantially lower than your credit cards. Student loans also offer some other protections for repayment that credit cards would not.

If you are able to pay off your credit card without paying interest, then no, do not take out student loans. If you want a loan on your credit, then use the share secured loan option that was mentioned above as that will likely give you an interest rate even lower than a student loan and will serve the same purpose for credit mix.

Re: Should I Take Out Student Loans Even If I Don't Have To?

SouthJamaica — Sat, 02 Sep 2017 14:35:41 GMT

@Anonymous wrote:
I took a 1 year hiatus from college, and am currently re-enrolled. My first 2 years at school, I took out an 11k loan which I paid off in the year I was out. My credit scores shot up, and I became elligible for a few credit cards with decent credit limits. Since re-enrolling, I've charged the cost of tuition to a credit card, and have occasionally utilized balance transfers to keep my individual credit card utilizations modest.

However, I read that it's possible that your credit scores can stagnate or even fall if you keep only one type of loan/credit balance. Lenders would like to see that you can juggle different types of debt like car loans, mortgages, student loans etc. My only debt would be the credit card bills that I pay every month, so would it have been better to just take out loans and pay that off so it looks like I can handle credit card debt and student loan debt?

Overall my credit isn't bad, last time I checked my Fico scores I was at 730+ across the board, my credit history is short (< 4 years) so I can't do anything but wait, but I wanted to know if that was a step that should be taken to improve my credit scores even further. (I'm 21 and live in NYC with my parents, so car loans and mortgages aren't the kind of things I'm ready to take on yet, but I will soon!).

In response to your question, no you should never take out a loan you don't need (the only exception being a nominal share secured loan to boost your credit mix).