Written by: Financial Aid Sense
What do credit reports and private education loans have in common? More than you may think!
It is important to understand the role of credit in the private education loan process, as private education loans are not automatic financing options. Private education loans are available from lenders, including banks, credit unions, state agencies, and private companies and are based on credit. What does that mean exactly?
Private loan programs use a borrower’s and co-borrower’s (if applicable) credit worthiness as a determinant when considering applicants for private loan eligibility. A borrower’s credit worthiness not only determines if they are approved for the loan, but has a bearing on the interest rate assigned to the loan. Ultimately, when talking about private loans, your credit rating is a very important determinant in the private education loan review process.
Although specific lender underwriting guidelines are proprietary information and unpublished to the consumer, it is known that the strength of the applicant’s credit is a large factor. With that said, it is a worthwhile exercise to review your personal credit standing regardless, as establishing and maintaining good credit is vital for many reasons. In general, credit is the basis of most consumer borrowing, thus being proactive with credit is a positive practice.
A great way to get a sense of your credit history is to request a free credit report from one of the three main credit reporting agencies. The Annual Credit Report website allows consumers to request a free credit report from each of the three main credit agencies each year. So that means that a consumer can get three free credit reports each year ~ one from each agency. For a FREE CREDIT REPORT, you can visit www.annualcreditreport.com. Just remember that you can request ONE free credit report from each of the main credit agencies (TransUnion, Equifax, and Experian) each year, so keep track of which agency you request your report from. Also, in order to get the credit report for free, consumers need to use the website noted above to access their report.
Be sure to check your credit report carefully to make sure there are no errors, such as credit card account standings, account payment history, and/or other consumer credit account history. It takes time to clear up your credit report and correct any errors or discrepancies. Do NOT wait until you need to apply for a PLUS Loan or private education loan to remedy a credit report issue. Private education loan decisions are made at the time of loan application – if discrepancies exist then chances for approval and/or the competitiveness of the interest rate could be affected. Start early and correct any errors you find on your credit report, if applicable. Your credit score is based in part on repayment history, thus missing a monthly payment can damage your credit standing.
A complete overview of credit is beyond the scope of this article, however, a financial planner can be helpful as well as a number of online resources related to credit.
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