<p>Good morning! I have a quick question about Sub. Stafford repayment and the effect on a student's developing positive credit history. My question is this: If the Sub. Staff loans are paid off immediately after they go into the repayment period after graduation when interest starts accruing, will that impact credit score in a less positive way than paying back over a longer period of time? Or in the eyes of the credit agencies, the timing of repayment and amount does not matter? I teach HS and and have had some families ask me that question. My S has not graduated yet, so I have no experience in repayment phase yet. Thanks to anyone has experience in this area sharing your thoughts!</p>
<p>The thing that would most positively affect your score is probably to make good payments on time for a long time. Though, with that, you are going to be paying interest. So you are basically paying for a higher credit score.</p>
<p>If you pay the loan off all at once, it will probably help your credit score but not as much as the former. But you would also save a ton of money not paying the interest every month.</p>
<p>I don’t know, but this is a question that is of interest to me along with the overall impact of having a student loan at all. My son just got turned down for an airline credit card with a very good credit score. He has verifiable income of about $25K and the only loan he has outstanding is his Stafford. The credit limit on that card was for $500-1000 It makes no sense that he was rejected. This is why loans are not a good idea. As tight as credit is these days, and it could get tighter, anything can tip the balance. For this, it 's just an airline card, but now he has a rejection on his record, and if he should get a nice job, that involves a credit check or wants to buy property in the next year or so, I am curious how this Stafford will play a role.</p>
<p>Wow - how is a young person going to get started on credit then without co-signers? That makes me think the stafford loan balance is then figured in the debt to income ratio and % of loan balance paid, until that loan gets paid off below half of the original loan balance or less, it could wreck havoc on a young person’s credit for a good part of the 10 year repayment period? I look forward to input by others…my own family is accepting sub staff only and it is not for full possible amount last year and this (fortunately at this time), but if it impacts credit that much that the kids can’t even get a small limit credit card after graduation with employment income, I may have to rethink our own S’s FA indebtness and get out of his even taking senior year Sub Staf somehow - me or dad looking for an additional part time job for S’s senior year. Future higher percentage rates on insurance premiums, mortgage costs, etc. will make it even tougher on our kids to get started in life… :-(</p>
<p>You know, it is possible to go through life without credit cards. We’re going on nine years now without any credit cards - or other debt, except for our mortgage - and we were just approved for both a car loan and a mortgage refi.</p>
<p>Annasdad,</p>
<p>I don’t think the point was to have a credit card. There are many benefits of having a branded credit card without carrying a balance. I think the point was that the kid got denied even having an income and paying Stafford on time.</p>
<p>Certainly one can get by in life without credit card utilization, but a good credit score is a reality for mortgages and car loans, and even renting an apartment in some places. That is why I am wondering how the repayment timing can impact that overall score, and for how long. Not being issued a credit card is a sign that something is impacting credit score and merits pursuing why. A lot of students who I have seen post on CC are on their own without co-signers a possibility. How do they get started building good credit, esp. when they have college loans on the books and are paying them (up to 10 years)?</p>
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<p>They start building good credit by paying those loans on time (and not letting the balance grow). </p>
<p>I think your original question was answered perfectly by wmurphy.</p>
<p>My son does have a credit card with about $750 in a credit line that he got when started college. I believe he automatically got a $500 credit line upon opening an account at a major bank who was courting the kids at orientation. It was upgraded to $750, and he has used the credit line wisely, currently having a small balance on it for an airplane ticket. Since he will be traveling extensively with this airline, he just filled out an app for credit card with them as it offers some other goodies as well. So it was a surprise that he was turned down. The turn down reason was just every reason that a person could be turned down for, nothing specific to him, and he has a great score, a student loan in the amount of$10K that has not yet come due, which we will be paying for him (he just graduated). I am looking into this more intently. THis does not bode well for borrowers as my son’s amount is not the full Stafford, he has successfully paid off a car while in college and he does have a job, that though is not high paying, at $24K is not ridiculously low for a guy his age just out of school. Plus he has a 4 year job history with this place of employment. </p>
<p>No, the card was not the point, though he wanted it for frequent flyer points. The denial is a problem as it is now an adverse item on the card and also tells you where he is in terms of being able to get any credit. Three years ago, he qualified for a 3% car loan for $5 k which he paid off 5 years ago, he got a $500 credit line which he has kept in A-1 shape, and now with this Stafford on his record, he was turned down for an airline VIsa, which I just checked–the range of the line starts at $250, and the interest rate is not good. So why is he not even eligible for a lousy $250 in credit. He was even flying on that airline while completing the app, that’s why he was handed the thing since he was traveling and wanted to get frequent flyer points on his account. Had he gotten the card, there was a bonus of quite a few points.</p>
<p>I am looking into it, but I suspect the reason he was denied is because of his debt to income ratio. $10K outstanding is too much for $25K in salary, I guess.</p>
<p>Getting denied for a credit card is more common occurrence now after the credit crunch. </p>
<p>Does you son make 25K or 254K? If the later, please share a secret sauce of his success.</p>
<p>CPT - I agree with you about what you think the reason is…also according to credit agency publications, a big part of the scoring has to do with credit utilization of amount still owed on original debt amt. If our kids haven’t started paying the Staff debt yet, they are still at 100% owed of the total amt of the loan. I am impressed by how your S has already gotten a great start on building credit with the car financing, etc. The airline points are great on some of the airline cards - we use one to help cover the flying home costs of our s from school and always pay the card off immediately. We got enough bonus points for several well timed flights when the points costs of the flights were low.</p>
<p>I’m sorry, my “5” key is sticking on this key board and 54 shows up when i mean 5. I’ve corrected the numbers. He paid of a $5K car loan in 2 1/2 years and is making $25K at a county job, though if he works over time and gives private lessons, both of which he is doing as much as possible, he could make much, much more. He makes about $10K each summer alone at the job and has for the past 3 years. That’s because of the hours he puts in and the private lessons he gives. He also worked for about $10 an hour during the school year, so he did make a nice chunk of change each year for a full time student. He is looking for a “real” job at the end of the summer. He is saving to go on a trip around the world, whatever he can save up, will determine the itinerary. So this airline card denial was a real slap in the face, as you might imagine.</p>
<p>After this trip, his very first abroad since he was 7 years old, he will seriously look for a job. He will use his college connections, including the Job Center that does have some resources that he did not use at all while there as he was too busy being a student, and did not have the foresight to check it out then, and whatever else we and our contacts can muster up for him. </p>
<p>No idea what he will find in the job market. Has a double degree in Math and Econ from a small, locally known and respected LAC with a 3.4 average. But not a college well known nationally at all. Only job experience has been tutoring, lifeguarding, rec dept, swim lessons, all college kid like stuff, but he has worked like a fiend at the jobs while in school full time-finished in 4 years. Can do all kinds of statistical modeling and did get a grant to do some for a “real” academic project. Nice kid, hard worker, honest, socially not that proficient. Never been in trouble with the law. </p>
<p>I’m feeling bad about the Stafford because we had him take it rather than taking a PLUS since the interest rate was better for the student. I guess I 'm going to have the same question as the OP about whether I should pay the thing off, which is not going to be easy or even possible for me to do right away, as quickly as possible, or take advantage of the 6 months grace period after graduation and pay it off slowly . I had though that it would help his credit by doing the latter, but this situation has made me think otherwise. This is a recent development, by the way. Just got the denial letter yesterday.</p>
<p>So Tboneparent, your question was timely for me personally, given my son’s very recent development. Thanks for your compliment. He really is a good kid. This trip he and two of his brothers want to take is a real luxury for them. I want to kick in some funds too, but I still have one in college and one in private high school to which we made a commitment. All of my kids worked during their college and high school years and paid a goodly amount of their college expenses. That’s why when I see posts here with kids that have absolutely zero to put towards college and absolutely no thought about finding a job to pay for the costs, it astounds me. With my oldest, we had had hopes to be able to pay his whole way through a private college, but even then we worked with him so that he had money from working in high school to pay some of the cost, and to continue the trend through college. With the others, it was a necessity if they went to the schools of their choices…</p>
<p>The other thing that has occurred to me is that given my son’s area of study and job prospects, a credit report will most certainly be done, and I am wondering how his will affect employment. If he can’t even get a $250 credit line right now, what does that mean in terms of a job in the financial industry? What is it going to do to kids who don’t have the strong credit history and scores that he has that are looking for jobs, especially if they have borrowed to go to college? They’ll need a car in many cases to work. Thank goodness he has his, which by the way, I was totally against his getting, which is why he had to do it himself. I didn’t pay a dime towards it because he really did not need it for college. That was his thing. But he has a paid up car in good shape, a good credit score, a card, some money in the bank account and a college degree. So hopefully he is in good shape. But he can’t get a $2540 credit line from an airline.</p>
<p>CPT,</p>
<p>I think you worry too much about the credit card denial. Only inquiry will show up on credit report, not denial. To ease your mind, have your son order free credit report he is entitled to and take a look at his score. If it is above 600, he is fine.</p>
<p>The most important thing is to pay the loans on time. How quickly or fast, should depend on his or your ability to pay. If he cannot pay it off fast, there is no reason to worry if he should. Wish him good luck in finding a job, it is a tough market.</p>
<p>He is in the 700s and was still denied.</p>
<p>Then it is not really a big deal. Ever since the credit crunch, the credit cards became more strict (and sometimes seemingly random) in how they extend credit. His score is great for job hunting and apartment renting purposes.</p>
<p>My mom was denied for a card as well and i think it was an airline card because I seem to remember her mentioning applying for it at the airport (I think they were giving something away if you applied.) Her credit score is very good. I forget the reason but she was very surprised because she had a high income and a tiny or non-existent mortgage. Maybe they don’t really want to give out the cards, but just want to collect info to market trips/vacations to people.</p>
<p>S1 has a few credit cards. He gets offers all the time. He is 22 and earns around 16k (while in school). He got his first card when he got his first job. He paid off a car loan. His credit score before he paid off the car loan was 640-680 (i think 680). I was surprised. His car is now paid off, but he will have about 5k in student loans. We plan to give him the $ and he can pay it off or use the cash for something else and make payments. We too are hoping that making payments boosts his score for when he is ready to buy a home. My mom did the same for me and I think I used it as a down payment on a car because the interest on the car would have been higher.</p>
<p>I think cpt’s son got turned down because the airline credit co is strange…It may have to do with the 10k loan, but credit companies should know that it is a 10 year repayment…</p>
<p>Like I said, this just came up. It is scary that though the economy and things are supposedly better now, it is more difficult to get credit, even in that minute of a dose.</p>
<p>To the OP, you are worrying way TOO much over one denial. First and foremost, getting denied doesnt ruin your credit, it will just show as an inquiry. Inquiries from applying for credit remain for two years, and they can affect your score if you have too many. If your sons score is in the 700 range, he will have no problem for jobs or rentals. Obviously that airline had certain criteria that he didnt meet, it doesnt mean he is not credit worthy for other things.</p>
<p>Often reward cards have higher income requirements than other cards. Perhaps this was the case with the cc denial. He should call the credit card company and ask a credit analyst to look at his specific situation. Sometimes the denials are computer generated based on predetermined factors (such as an automatic denial with income less than say $30,000) but once an analyst looks at the whole picture they can sometimes override that denial. Wouldn’t hurt to make a phone call to find out.</p>