Building Credit while in Medical School

[Red1Blue]

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@mkhan1093 wrote:

In a very similar situation here - not medical school but graduate school (which is slightly better because I can report my stipend as income). I found a lot of the answers here helpful. Going back to the revolver vs transactor debate, does that mean one should never take advantage of intro 0% APR offers? Often I like to finance a big purchase on a new credit card so I may pay in installments without paying any interest. Is that bad from a credit score perspective (assuming I compensate other balances so that  overall utilization < 10%)?

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I dont think there is any thing bad with what you want to do. You have to keep in mind every time you open a new account that will put a ding on your scores. As long as you are aware of your scores and how much drop you are willing to take when you open a new account is the factor to consider when you make a decision to open a new account.

[mkhan1093]

Ok thanks, I was only asking because earlier you had seemed to say that it looks poor to keep balances revolving from statement to statement. Or maybe I had interpreted that wrong?

[Anonymous]

No.  You did not read that wrong.  Here is what I said:

You are also clearly thinking about what looks good on your credit for the very long term -- what is going to look good 5 years from now or even further.  Carrying CC balances every month (that's what you do with a 0% card) will look bad in the credit scoring models of the future.  It's called being a revolver.  That's contrasted with transactors, who are people who pay their cards in full each month.  Transactors have been shown to be much less risky than revolvers, statistically.  So many lenders moving forward will be analyzing your reports to see if you have been more of a revolver or a transactor -- not just that month but also month by month stretching back several years.

I have highlighted some key phrases.  These show that I am talking about how being a revolver (or having once been a revolver) will be considered by the lenders and scoring models of the future. 

In the past (and up through very recent times) your credit reports have had very limited data in on your credit card balances.  There were no historical data on your balances -- all that the reports contained is what your last balance was.  And there was no information whatsoever about how much you paid.  But starting a few years ago, the bureaus began storing very rich datasets that showed every statement balance and the amount and date of every payment -- stretching back 2-3 years or more, month by month.

This means that anyone pulling your credit reports can now see whether you have historically been more of a Revolver or a Transactor.  Some lenders are certainly doing that.  For example, Fannie Mae placed an R-T analysis module inside its Desktop Underwriter software -- which is used by pretty much all mortgage lenders.

I have some pretty reasonable guesses as to how a Revolver can reduce his risk profile from the perspective of an R-T analysis module, should you want to hear them.  The best solution is to never be a Revolver ever -- but I think there are some ways to look look like a much less risky R if you really feel strongly about 0% cards.

All that said, FICO 8 and earlier models do not contain R-T analysis, and probably FICO 9 does not either.  FICO 10 almost certainly will.

[mkhan1093]

Thanks for clearing that up, CGID. I must admit it's slightly discomforting to know that credit reports are only going to get more detailed, but so be it. I will keep that in mind as I continue in my credit card journey.

[tacpoly]

From personal experience (DH and I got out of undergrad, med, grad school without any student loans), the most important thing is to not spend money unnecessarily.  Only put on credit cards what you can afford to pay off in full.  And don't miss any payments -- for anything.  If you follow that, you'll get out with great credit. 

Many on this forum always seem to recommend active management of credit (applying for more cards, asking for CLI, applying for some safe secure loan, etc...), but you don't need to do all that.  Just keep your 3 credit cards in good standing (i.e. pay in full on time every month); combined with your student loans, increased AAoA, and high earnings, you should not have any trouble getting more credit after med or grad school. 

That's it.  It's that simple.  Seriously.  Our combined credit card limits are in the hundreds of thousands.  But what lets me sleep soundly is that even if we max out all our credit cards at once, we can immediately pay all of it in full.  It's not just how much you have in credit, how much you have in the bank is even more important. 

ETA:  The one activity I encourage is to always get your free annual credit report from the 3 bureaus. 

[Anonymous]

Stunning amounts of wisdom from Tacpoly.  YES. 

[Anonymous]

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@RobertEG wrote:

Additionally, since you have federal student loans, it is important to be aware of the very strict implications of delinquent federal loans, and make sure you do not become delinquent.

Under the Higher Education Act, there is no statute of limitations, delinquencies have extended credit report exclusion periods, and delinquencies have mandatory reporting requirments.

Once you begin making repayment, be sure not to become delinquent......

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Thanks for your reply and advice. I am very good at checking my federal loans. I worked for a year, where I made monthly payments, but definitely something that's very important to keep in mind going forward.

[Anonymous]

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@Red1Blue wrote:

Op. Congrats for getting accepted into US medical school. I am sure once you complete your school there will be several options available to you to sign up for the service and they will wipe out your educational debt. You are lucky you got accepted into state school with good scholarships. I am studying in a Caribbean Medical school now and have to borrow against my credit card to pay school which ended up being very very very expensive for me. Good luck. You'll do fine. What speciality do you want to go into when you graduate?

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Thanks! That would be really nice to have options to wipe out my debt after residency. Best of luck to you. That's a very tough road. Right now, I'm considering urology and interventional radiology, but that very easily could change. How about you?

[Anonymous]

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@tacpoly wrote:

From personal experience (DH and I got out of undergrad, med, grad school without any student loans), the most important thing is to not spend money unnecessarily.  Only put on credit cards what you can afford to pay off in full.  And don't miss any payments -- for anything.  If you follow that, you'll get out with great credit. 

Many on this forum always seem to recommend active management of credit (applying for more cards, asking for CLI, applying for some safe secure loan, etc...), but you don't need to do all that.  Just keep your 3 credit cards in good standing (i.e. pay in full on time every month); combined with your student loans, increased AAoA, and high earnings, you should not have any trouble getting more credit after med or grad school. 

That's it.  It's that simple.  Seriously.  Our combined credit card limits are in the hundreds of thousands.  But what lets me sleep soundly is that even if we max out all our credit cards at once, we can immediately pay all of it in full.  It's not just how much you have in credit, how much you have in the bank is even more important. 

ETA:  The one activity I encourage is to always get your free annual credit report from the 3 bureaus. 

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Thank you! That's great advice.