With so many lending companies out there competing for your business, it's easy to fall into a false sense of security about the requirements of getting a loan. Frequently prospective students are inundated with advertisements of money that sound like they’re giving it away for free.
If only this were true! Loan candidates should always remember that with few exceptions (like some federal loans); even the least restrictive program will look at that same set of credit criteria for student loans.
First, the lender will check with one or more of the major credit information bureaus to see what kinds of large outstanding debts you already have in your file. These debts can include any automobile loans, home mortgage and health care tabs you are currently paying.
Next, the company will check any and all personal debts, such as utility contracts, cell phone contracts and credit cards past and present.
It's the stories surrounding each of these things you might have in your consumer portfolio that the lender looks at.
Bankruptcy is probably the biggest red flag a loan management company will consider when deciding whether they can absorb the risk of loaning you money. Each company is, of course, different in the terms it may provide to make a loan to someone with a bankruptcy – if at all -but since this type of default stays on your record for up to ten years, it’s important to remember that this a major criteria when considering your candidacy for an educational loan.
Another factor in loan point scoring is the total number of debts, like actual number of credit cards, auto loans, personal loans etc. This is not quite as important as the criteria that come next, which are included in the management of those debts.
Do you pay off your credit card and other loan balances every month in full, or just the minimum payment? Do you have balances on every single credit card, or just a few?
Are your payments prompt, or do you always run past the grace period of your statement payment due dates? Do you apply (and keep) the maximum amount allowed on all your credit cards, so that it’s possible you could run up thousands of dollars of debt in a short period of time?
Do you frequently open and close accounts? This is, again, scrutinized when assessing your candidacy for a student loan.
One other way in which your loan success might be gauged is establishment of credit. Sometimes an applicant can have little or no accounts in his or her past which indicate one way or the other how he or she has managed their finances.
In this instance, it's important to speak to a loan officer or school loan coordinator about a plan of action to assuage any doubts a company (or the government) might have when considering you as a loan candidate.