<p>So, I finally got back my FA offer from my first choice college, and things are looking pretty good. Between scholarships and my college account, I could probably get through at least the first 3.5 years without any sort of loan.</p>
<p>However, I've been thinking that maybe I could take advantage of the (small, only $1200) subsidized loan to build credit, while declining the others. My questions are:</p>
<ol>
<li><p>Do the subsidized loans build credit? It would make no sense that they wouldn't, but this is a weird world.</p></li>
<li><p>If I began to make payments, would that automatically end the period where the government covers interest? I.e. I would from that point have to pay the interest as well.</p></li>
<li><p>Assuming that the above don't cause problems, what would be the most effective way to pay it back, for building credit? I'd probably set up an automatic payment, but would it be best to make a payment every month? Every other? 6? And how long would I want to plan on paying it, such as fully paying it off in 12 months, just in time for the next one, or stretch it out until towards the end of college?</p></li>
<li><p>I'll be entering as a minor, and won't be 18 until December. Will I still be able to build credit, or is there no affect until I'm 18, or will the loan as a whole have not effect since I wasn't 18 when it began (At least until I'm done, but by then it would hopefully have been paid off)?</p></li>
</ol>
<p>The whole borrow money to build credit is a bit myth in my opinion. You will build credit as you pay your bills on time. Your income or lack thereof will have the biggest impact on your ability to borrow as a young person. That said, taking a student loan and paying it back as scheduled can’t hurt. There is a 1% origination fee charged on sub and unsub loans. They take that out before disbursement. If you only take out the subs the gov’t will pay the interest while you are a full time student. You can pay some or all of the loan back while you are a student. You must start paying it back once you graduate or are no longer a student. If you pay it all off right at graduation you won’t pay any interest.</p>
<p>My sister did this.</p>
<p>She received a subsidized loan for $3,500. Since she had a fellowship which paid nicely, she didn’t need the loan amount for expenses. She took it, put it in the bank and didn’t touch it, and paid it off in full a month after she graduated. She paid absolutely no interest and only paid the origination fee. Having graduated in NYC, and needing to remain there, she knew credit checks would be a part of the process for renting an apartment. Her credit score, six months later, jumped to 803.</p>
<p>So I would pay a few bucks just for the origination fee, but if I got it paid off before the grace period, then I would pay no other extra and it would have some positive impact, but it may not be very large, is this correct? What about if I do it by making a payment with a credit card, and then pay off the credit card every month?</p>
<p>@LimaBeans: did she make a payment every month, or every 6, or just one lump sum at the end?</p>
<p>qwerttrewq,</p>
<p>During the 6-month grace period following graduation, you do not have to make payments, but the interest will be capitalized (added) to the principle amount of your loan once the grace period ends.</p>
<p>My sister was trying to decide whether to make payments during the 6-month grace period (thought it might look better, credit-wise) or just pay it off in full in one lump sum. She chose to pay it off all at once since she had opportunities for travel, didn’t want the hassle of remembering another payment every month, and especially didn’t want to pay interest (although it wasn’t much).</p>
<p>WRT your plan about using a credit card to pay off the loan, and then paying off the credit card every month…that doesn’t make sense to me. Both payback methods should establish credit. You will probably be paying higher interest on the credit card when compared to the interest rate of the loan. </p>
<p>To add, so as not to mislead you, I don’t think it was just this loan that raised her credit score. My parents had both of us take out credit cards before our freshman year (and in answer to your original question #4, we were both under 18 at the time, thus started building credit as minors). We used the cards once or twice a month and paid them off in full every month. We are both financially disciplined, so it worked for us. I don’t necessarily advocate credit card use. After four years of this, I’m sure her credit rating increased, contributing to that 800 score. In other words, I don’t think it was just the payback of the student load that did it.</p>
<p>LimaBeans,</p>
<p>I was planning on paying off the card each month before any interest was applied. Unless cards start charging interest immediately now.</p>
<p>Anyways, that basically brings me back to what I said before, that it should have some positive effect, but probably not a lot.</p>
<p>I still plan on talking with a few teachers and counselors who know my situation a bit better, but I think I have the gist of what I need to know. </p>
<p>Thank you!</p>