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A Question and an Example
First off, the example: golbguru has documented the effect of credit utilization (what I usually call debt (or balance) to credit ratio) on his FICO score. To sum up, his score went from 771 to 737 when his credit utilization went from 2% to 23%. He did this as part of a credit card arbitrage plan.
This is the kind of thing I love to see. I am just one person with one FICO score. I have tracked my score for about 3 years now, and I have seen the effects of various financial decisions on it. But I necessarily have a limited set of experience there. Seeing how other people's FICO scores change in certain situations is more data that helps up to confirm our model of the FICO score and how to properly game it. If any other readers have similar experiences (with before-and-after FICO scores) to share, I would love to have you leave a comment about it!
Now, on to the question part. A reader wrote in recently with a question about student loans for an MBA student. I am doing some research for the full answer, which I will post here soon; part of this research involves getting info from others. Namely, have you (or somebody you know) ever been turned down for a student loan? What kinds of student loans, e.g. Stafford, Perkins, etc.? For what purpose were the loans, e.g. undergrad, grad school, med schoool, law school, business school?
When I went to college, I got Stafford and Perkins loans. My parents also got PLUS loans for my education, even though their credit was in pretty bad shape at the time. I was (and still am) under the impression that it is very difficult if not impossible to be turned down for these loans; I'm not sure if your FICO score ever even enters the equation. Student loans are heavily regulated and sometimes even backed by the federal government. Plus, they seem like a pretty safe loan. Education is a proven good investment, and after graduation, one's income is almost guaranteed to go up. Plus, student loans can't be wiped out by bankruptcy.
But, my knowledge is once again limited to my own experience. I have no idea what the loans are like for graduate school or professional school. So I am asking you to please leave a comment so I can find out more. If you have ever had student loans, I want to know about them.
3 comments:
I've had Stafford loans (both the subsidized and the unsubsidized ones), and the Perkins loan. In order to get the Unsub-ed Stafford, I had to have my mother apply for and be denied for a PLUS loan. I had to do this each year to renew the loan! It was ridiculous!
But yes, my mother was denied the PLUS loan. It's a really demeaning process to have to be denied for one loan each year just to get another one. Remind me to yell at the financial aid office about that when I call them tomorrow! ;)
I have had the WaMu credit card since November and so have some pretty clear recent history on my (Transunion) credit score...
I had about $40K in credit card debt and a $60K HELOC at the start of this period. In December I refinanced the HELOC to get a $125K line (with a slightly lower rate courtesy of USAA) and paid off $30K of the credit card debt (basically all of it that was not currently at 0% interest).
My Credit Scores according to WaMu went as follows;
Nov - 650
Dec - 648
Jan - 637
Feb - 705
Independently, I have been looking at my credit scores using TrueCredit.Com and the most recent figures are;
TransUnion - 771
Experian - 720
Equifax - 692
All the information in the three reports is fundamentally the same (indeed is almost identical with the only difference being that due to timing issues Equifax shows a balance of $1,500 on one credit card while the others only show $22), so I find it interesting how much these scores vary.
Overall, it seems that there is a three or four month lag before changes that you make affect your score, but your score can change drastically simply by moving from unsecured credit to secured credit.
Also, the WaMu credit score may not match your actual Transunion credit score so rely on it more from trends than for actual figures.
I financed my education through both unsubsidized federal Stafford loans (direct loans in my name only) and PLUS loans (on which I'm a cosigner). Only the Stafford loans show up on my credit reports, and repayment is deferred until I graduate this May. On the other hand, the PLUS loans don't appear in my EXP/TU/EQF reports, even though they entered repayment at the end of the semester each was disbursed.
To answer your question, it is possible to be denied federal student loans -- this happened to me and my parents for different reasons. I was denied unsubsidized Stafford loans for my final year because I have accumulated too many credits before graduating. Evidently, this government caps credit hours to avoid offering cheap credit to bad students who may never graduate (unfortunately, this policy overlooks people like me who pursue a triple major). I was ineligible for additional PLUS loans for the same reason. My parents then tried to get a private educational loan from Citibank, but were denied (despite perfect credit) because they are self-employed, and the underwriters felt that was too great of a repayment risk. Ultimately, I took loans from family and worked part-time to pay this last year's tuition.
Without having checked my FICO, I doubt that being declined educational credit has negative impacts beyond adding inquiries to your report. In either case, the moment of truth is upon me: I just accepted a full-time job offer, and (after graduating) hope to get a mortgage through a first-time-homebuyers program...
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