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

[Anonymous]

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!).

[mitchblue]

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.

[MrDisco99]

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.

[K-in-Boston]

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.

[RobertEG]

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

[Anonymous]

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.

[Anonymous]

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-Secu...

[Anonymous]

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. 

[Anonymous]

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.

[Anonymous]

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).