Use student loan to build credit

[Anonymous]

Hello all, I'd like to ask everyone for advice on my situation.  Basically, here it is:

*I have one fall semester left to graduate from college

*I qualify for up to $5000 in subsidized federal loans

*after all my other financial aid has paid for me, I will have a balance of roughly $3000 to the university for the semester

*my credit history has only 2 credit cards, both under 1 yr. each and no installment lines

*I have more than enough cash to comfortably pay the $3000 balance immediately as I have about $8000 in savings

*I plan to purchase a used car (my first) in the near future, i.e. < 6 months 

My question: Even though I don't need the 5K in student loans, should I take it anyway to kind of basically use it as an auto loan and/or to build credit history?  I like the deal where I don't have to pay it back  until 6 months after I graduate and I am kind of concerned of how my lack of installment loans affects my credit score.  Also, the interest rate on student loans is better than on auto loans. Thanks in advance.  It's cool to have a good resource like this forum to become more informed.

[Anonymous]

What is the interest rate on those loans?  Do you have any other loans right now and if so, are they also subsidized?

As much as it was nice to have loans and cash while in college, now that I'm out I wish I wouldn't have taken out so many loans. 

I would suggest, assuming the interest rate is under 6.5%, to take out $2-3k in loans (assuming you are SURE you can get a job in your field and will have no problems repaying the loans quickly) as well as pay your outstanding bill.  This will leave you with $2-3k in your savings (a good EF which is also a must) and will add new mix to your CR.

Keep in mind though, that student loans cannot be discharged in a BK and can be troublesome later...you don't want to still be paying them 10 years after you graduate.  Also, you can get a 760+ FICO score WITHOUT loans...my husband has one CC and a score of around 740 (and his CC doesn't actually report, which brings his scores down ).

So to sum:

only take out a loan if you want one and want to keep some funds in your account and know you can pay it off in a year or two

don't use all your savings, keep at least $1,000 for an EF

Don't think you MUST have a loan for a high FICO score

good luck!

[Anonymous]

thanks so much for the info.  you answered my questions very well.