<p>My understanding is that the credit score is not used… Just if you have any old collection account still unpaid at or more than 90 days overdue.</p>
<p>@cptofthehouse or anyone else who knows the answer/s: </p>
<p>Will taking out a PLUS loan automatically lower your credit score by increasing the reported debt load for parents? Or does it not show up until you start paying (i.e., if deferred until graduation)? </p>
<p>Also, if married do both parents have to be on the PLUS loan, or can either one apply separately? Both H & I have good credit but we’ve never applied for joint credit. </p>
<p>I do not know how PLUS reports to the credit agencies, for sure. Since they do check the primary credit agencie, they will know when you apply for that loan, so that inquiry will be a hit. If accepted, my guess would be that it would right on there as debt and would be so accounted for… outstanding debt for which the terms are being met up until a payment is missed. </p>
<p>Only one parent has to apply for PLUS. If turned down that parent can try to use the other as a guarantor for that loan, or IMO preferred would be to have the other parent apply since if one an be a guarantor, that person can be the borrower. Why have both parents tied up on the loan when only one has to be? </p>
<p>A Parent Plus loan does show up on your credit report. The balance is shown and for the monthly payment it will show deferred while the student is in school. I don’t know what impact, if any, it would have on your scores while the loan is in deferment. In some instances, once the loan is in repayment, having an installment loan with a good payment history can actually raise your scores.</p>
<p>Where it can be a problem is if you have a huge loan outstanding and not the income to support it. When you apply for most loans, income/vs outstanding amount ratios are done. PLUS does not use a credit score, income or such ratios so someone making $10K a year, or nothing even can borrow $60K+ COA amounts. The problem is if that parent tries to buy a house, qualify for a loan of sort, anything that requires a credit check, it is going to show up as an owed amount. Those numbers also affect the credit score.</p>
<p>Credit scores do not take debt to income ratios into account. Scores do consider how much of your revolving credit you have used, so if you have a credit card with a $5000 limit and you have a balance of $3000, you have used more than 50% and that is a ding and will lower your score. The PLUS loan is not revolving, so doesn’t count in that calculation. The initial application might be a small negative as applying for too much credit in a shot period of time may be considered a negative, but no more than 5 points or so.</p>
<p>Where it may hurt you is if you apply for another big loan, like a mortgage. That lender may consider your debt to income ratio and even if you aren’t in a payment mode, the lender can consider that this large debt and its payment are going to being soon. They might think it is okay, but they can consider it.</p>
<p>Income doesn’t matter. I’ve been unemployed and had a credit score of 775.</p>
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@cptofthehouse I agree - that’s why I was wondering so thanks so much for your feedback. </p>
<p>@rockvillemom and @twoinanddone thank you as well! </p>
<p>All this is good info. to consider in weighing pros versus cons of taking out a PLUS loan. </p>
<p>A strategy that I think is probably good is for the parent with the lesser income, the one who has the least chance of needing loans in the future should take the PLUS. If there is a SAHP, for example, that parent might be the one to take the loan. The one who is more likely to need credit in the future, business loans, employment, mortgage, the main breadwinner should try to keep that loan monkey off his back because the debt to income ratio may be used in a lot of such scenarios and can hurt ones chances in some jobs, loans and apps for entry into some communties even, and mortgages. Since income isn’t considered, nor is credit score, a non working spouse, one with past credit issues now resolved (no 90 day past due accounts allowed for PLUS approval) might be the best bet, to leave the parents with flexibility for their own financial futures.</p>
<p>Of course there are ramifications to that as well, such as if the marriage should break up. That’s really sending that one parent to the dogs financially, for example. So a lot of issues have to be put on the table and examined.</p>
<p>If you are divorced can both parents take a plus loan?</p>