To Improve Your Bad Credit You Must Improve Your FICO Score

A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. This method was developed in the late 1950s and has become widely accepted by lenders as a reliable credit evaluation.

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict your future credit performance. And this information predicts how well of a credit risk you will be in the future.

How Will Consolidating My School Loans Help My Credit?

Consolidating student loans is one of the most effective ways to improve your FICO score dramatically. Just a few additional points on a FICO score can literally save tens of thousands of dollars over a lifetime by locking in low interest rates on houses, cars, and other items purchased later with credit.

The second heaviest weighted factor is based on the amount of debt owed; reducing this amount can make a drastic impact on your credit score. Lenders also look at debt to income ratio when determining the amount of credit they will lend you.

For those who are just starting their careers, the lower monthly payments that result from consolidating a student loan can make a highly favorable impact on debt to income ratio.

Borrowers who refinance their student loans often save well over 50 percent on monthly payments. Young adults who are just leaving school and starting their lives, families and careers already have the chips stacked against them when it comes to finances.

Most graduates rely on credit cards to help leverage cash flow in the years following college. But by choosing credit cards, especially for those who can’t pay off the balance immediately, can become a source of angst and take a toll on your FICO score.

By choosing to redirect the money saved from student loan consolidation, borrowers can pay down high interest credit debts. Once debt consolidation loans are in place that money then can be redirected to be more beneficial for you.

How Student Loan Refinancing Works

Student loan refinancing works by first locking in a low fixed interest rate as opposed to the variable interest rate customary of most government loans. Once a specific repayment amount is determined, the loan is then spread out over a longer period of time.

This change then results in a lower monthly payment. There are not penalties for early repayment of a consolidated student loan, so borrowers can leverage the lower monthly payment to improve their FICO score and pay off high interest debts early on.

The effects of a student loan consolidation and your FICO score should not be overlooked. You will be able to choose a loan that will work for you and know that you are in better control of your debts and your life.

The ability to secure credit at low interest rates will most definitely have an impact on your financial future and the lifestyle you are able to lead. With a better FICO score you can have access to higher limits of credit, loans faster, and rescue the amount of your hard-earned income being spend on interest payments.

In today’s society it has become extremely difficult for people to get through life without acquiring any kind of debt. Only a small amount of people actually live without debt and that includes those people who have inherited a large amount of money early on in their life. Even celebrities, famous athletes, and rich business people have had to deal with some sort of debt at least once in their life.

There are many kinds of things that cause people to accumulate a large amount of debt in their lives. Many people today have invested in the use of a credit card, or even several credit cards. These cards can cause people to fall in to the deep holes of debt and often entrap them until they are no longer capable of getting out.

Other types of things that cause debt are car purchases, boats, land, and especially house mortgages. All of these things often require the buyer to acquire some type of a loan from a bank in order to purchase them. These loans allow people to purchase these items up front and then slowly pay back the loans over a longer period of time with interest.

One of the most commonly acquired loans is student loans. Student loans are often acquired by people who are seeking to obtain a higher education and do not have the financial means to pay for it. Receiving an education at a university or college can be very expensive, especially as your advance into the higher degrees of learning which include master degrees and doctorate degrees.

Most people simply take out a single loan in order to pay for the acquisition of their bachelor’s degree. This is an easy loan to obtain and can easily be paid off throughout the next few years after the education is received. The majority of students who only get a bachelor’s degree only have a 4 year loan to pay off and do not have to worry about consolidation.

There are many other students, however, who seek a higher education that obtains degrees that are more expensive than seeking a bachelor’s degree. For these students, taking out loans can be much more expensive and much more frequent as well. They often accumulate many student loans that they have to pay off throughout the next couple of decades in their lives.

Students who have many student loans to pay off can consolidate them into one monthly payment. Before doing so with one bank, however, they must make sure that there are no hidden catches or strings attached to the consolidation. Many times, banks try to increase interest rates dramatically and fail to inform the payer.

They should also look at the simplicity of the consolidation. Consolidating student loans should be a simple process, which is the entire goal of the consolidation. If the process seems to be getting too complicated, then you know that this specific plan is not very good.

What Is Student Loan Consolidation?

Consolidating your loans can be very confusing. There are many questions you need to ask and to have answered before proceeding with this endeavor. In a lump sum it can sound terrific, yet you need to know more about the full puzzle to be sure.

Loan consolidation is when one vendor, who opens a new loan, pays off several different loans. This new loan allows you to pay just one bill instead of several different loans, maybe from several different lenders. There are benefits to consolidating debt, but there can be drawbacks also.

Depending on your own situation, you will need to discover whether consolidating loans or keeping loans separate is the best for you. Indeed it is great to have the benefit of paying one monthly bill and knowing that your debt is through one financial lender.

The monthly payment is usually much lower on consolidated loans than individual loans. They will take all of your loans, refigure them as a new loan package and then you will be offered different options on how fast you want to pay them back.

The flip side of this is that if you have private lenders for your loans, you will not be able to consolidate your loans through federal consolidation. There are some private consolidation lenders you may want to look into. Keep in mind that they are not held to the same regulations that federal loan consolidation programs are by law.

How To Consolidate Your Student Loans

To consolidate your loans, log on to FinAid for an extensive listing of banks that can provide information, and set up, your consolidated loans. You will need to fill out a little information on yourself and then the financial institution of your choice will handle the rest of the work. Make sure all of your information and records are accurate.

You may only consolidate once, so if rates do go down you will be stuck with your current rate. However, with loan consolidation you generally get a lower fixed rate for your consolidated loans than on individual loans. A fixed rate means that they won’t increase your rate later on as inflation rises. This works in your favor, since rates tend to increase as time goes on.

Tips You Should Know Before Loan Consolidation

Students should only consolidate variable rate loans (for example, Stafford Loans), not fixed-rate loans like Perkins loans. Because Perkins loans are fixed rate, there is no financial benefit and you may lose some loan forgiveness provisions.

Student loan consolidation programs are not the same among lenders, with varying interest rates, grace periods, penalties for late payments, time for loan repayment, and other incentive and discounts. So, it’s best to shop around!

Although consolidation lowers monthly payments, it also means more interest will be accrued over the life of the loan and significantly increase the loans total cost. To best reap the benefits of consolidation, try to make the same monthly payments and pay the loan ahead of time.

To lower total interest rates and cost of your loan, you may not want to consolidate all of your student loans (for example, you may choose to include only unsubsidized loans or exclude a high interest loan with a low balance.) Check with your lender which options would be best for you.

Student Loans Can Do Both - Let’s Explore How They Can Help

First, student loans can affect your credit rating very much. However, remember if you are a student who is still attending school, student loans do not show up on a credit report at all.

You have a six-month grace period after you have graduated before worrying about repayment or having the loans show up on your credit score. Once these periods have passed the loans are factored into your overall credit rating.

The reality of a hefty student loan usually kicks in when graduates budget for loan payments while making relatively low starting salaries. Borrowers can also become discouraged when their debt has barely shrunk after years of payments.

This can dishearten even the most credit minded individual, and has caused some borrowers to default on their loans. So before this happens you have to make arrangements for loan payments that you can live with. And this has to take place way before you graduate from college.

It is very important to remember that regular payments must be made to have a positive effect on your credit rating. If you are just setting up your loan now, you will be given your different repayment options to chose from. Now is the time to choose wisely and not to get your head stuck too far into the ground for the future. Typical options are:

1. A standard fixed repayment that is above $50.00

2. A graduated payment that increases with time. This type of loan usually lasts from three to ten years.

3. A conditional income payment. Your loan payments would be determined each year by your previous year’s earnings.

4. If you have a large loan, you can request an extended repayment that can last from 12 to 30 years depending on the amount of your loan.

Ask all of the questions that you can think of, such as: is there a penalty for early pay-off, can I make double monthly payments sometimes, who can I talk with when I have other questions, and anything else that might come to your mind before signing for your loan.

While education can be priceless, the rising cost of day-to-day expenses can easily detract from student loan payments. It’s important to remember that these loans are almost always a long-term commitment and can sometimes feel like a heavy financial burden.

Financial institutions understand this also. Managing your student loans can help your credit for the rest of your life. Once again, borrowers must avoid missing payments if at all possible. Slow, steady payments made monthly show the lender that you are trust worthy and dependable. And this is then reported and shows on your credit report.

Let’s Explore How Student Loans Can Hurt Your Credit

Changes were made to the Bankruptcy Code in 1998, student loans are non dischargeable unless a borrower can establish severe financial hardship in paying back loans. In other words, the debts students accrue throughout college must be paid.

Possible outcomes for defaulting on student loans include additional collections costs, garnishment of wages, and loss of eligibility for future federal financial aid and seizure of tax refunds.

Programs have been set up to help college students when they get to this point. All of them will help the student with such financial problems. Interest on the loans continues to grow. This does not help with the credit rating. Yet, with hard work and with a continual pace things will improve.

How To Define School Loan Consolidation

Everyone describes the act of consolidating school loans slightly differently. Some say consolidation cuts your monthly payments. Others prefer the interest rate decrease after 36 months more useful. Finally, others enjoy only paying one bill each month.

Regardless of your preference, school loan consolidation encompasses all of the above, and can almost certainly assist you with either multiple federal loans or private loans.

Looking at federal loan consolidation, this is a fixed-rate refinancing program that combines all of your existing federal loans into one new loan. Examples of potential loans you can consolidate include Stafford, Parent PLUS, Perkins, and Direct. In terms of saving money, school loan consolidation can lower monthly payments up to 53%.

Alternatively, private student loan consolidation is a separate program for refinancing all non-federal school related debt. This method of consolidation offers the convenience of single, lower monthly payment for an individual’s private loans.

Federal Student Loan Consolidation

Legislative has recently (7/1/06) been passed regarding federal loans. In-school consolidation is no longer an option. You will need to be out of school to be eligible to consolidate. Next, you’re no longer required to have multiple lenders. And, you are no longer able to consolidate your loans with your spouses’ loans.

A federal consolidation loan is a governmentally ‘set’ term and will be the same regardless of who your lender is. Many people consolidate with the government because they assume they will have more ‘benefits’ than other programs. The reality is that the benefits of the loan will be the same regardless of whom the loan is through.

The primary conclusion, or the “financially smart” option is not going to be the same for each student. It is a factor of how you plan to repay your debt and what is most important to you at this time in life. It also depends on where you live. Consider all options, most states offer many different types of consolidation programs. Here are some examples:

Quick Repayment (1-3 years)

• .25% interest rate reduction for auto pay

• 5% principal balance credit

Extended (beyond 8 years)

• .25% interest rate reduction for auto pay

• 2.25% reduction after 48 on-time payments

Intermediate Repayment (3-8 years)

• .50% reduction for auto pay

• 1.25% reduction after 48 on-time payments

Private Loan Consolidation

As with federal loan consolidation, we must first look at the changes and considerations for private loan consolidation. First, you cannot consolidate private loans until you’re out of school and beginning repayment. Next, you cannot consolidate private loans with federal loans.

And unlike federal consolidations, in the vast majority of instances, consolidation private loans will leave you with a variable rate loan, not a fixed interest rate. Remember after checking all of your options, keep in mind that the best option is often to leave your loans alone.

As mentioned, there are only a few companies that don’t have stipulations in order for you to use their consolidation refinance program. You will want to shop closely the loan rates and terms because the lender, not the government sets the interest rates (most are linked to the Prime Rate.)

Perhaps the most important question to ask is “how is your credit now”? And what did it look like when you first took out your loan? Private loans are credit-based and if in any way you have had problems along the way you should reconsider.

Also, remember most companies will assess fees to consolidate, along with maintaining a variable rate, even if your credit has not dropped. It can be a difficult decision and only you can decide after knowing your financial situation if consolidation will lift that burden or increase that burden.

Is It Always A Good Idea To Consolidate Student Loans?

Most of college students will graduate with a debt amount starting around $20,000. They usually have taken loans from different lenders with high fluctuating interest rates. When you need to have the many loans consolidated, these loans are bundled together by the student loan consolidation company and paid off.

The student then pays the new lender at a new interest rate, which is usually the average of all the interest rates previously taken out. The time period is also longer and students have different options of repayment. Thus, student loan consolidation saves money, makes life easier and you only have one loan to pay off.

Where Is A Creditable Student Loan Consolidation Company To Work With?

Check with school financial counselors, telephone books and one of the best places to start with is the Internet. In fact, this is my favorite place to start. Check out, student debt consolidation programs, (a great one) and others in the same area.

Questions you need to ask of them are:

• Do they explain all the charges and not ask for any upfront fees?

• Do they offer different types of payment options?

• Do they answer all of your questions and patiently hear you out?

• Do they have a competent student loan consolidation counselor to guide you?

• Do they let you take all the time you need without pressure before signing any papers?

• Do they offer any special bonus or special discounts?

• Does the association of independent consumer credit counseling agencies to consolidate your loan properly accredit them?

If all of these questions are yes, then you have discovered a good student debt consolidation company. However, don’t just take their word, be sure to check on other offers in the same market. And crosscheck with the “Better Business Bureau” for their track record.

If you feel uncomfortable with a particular company, walk out. There are many student loan consolidation companies offering ”no cost” student loan consolidations, but do not be lured by them. You could end up paying more. Also, make sure that the company you go with does not penalize you for early repayment of your loan.

Additional Information That Might Be Helpful Regarding Loan Consolidating.

Who is eligible for student loan consolidation? You must have more than $10,000 in outstanding student loans. And you are not required to be employed, to have any collateral nor need a co-signer.

Are there any fees when I consolidate? No, there are no fees. Is there a credit check required to consolidate? No, there is no credit check. And consolidation will improve your credit rating due to one lower payment to pay now.

Do I continue to make my loan payments while waiting for my consolidation application to be completed? YES!!! Until you are notified that your loans have meet all of the requirements (this can take anywhere from 30 – 90 days) keep making payments on all of your old loans.

One of the most asked questions is what about a repayment guideline. Depending on the total amount of your consolidation loan (and this is for a government loan) the following repayment periods are:

Loans Balance Repayment Period

• $10,000 -$19,999.99 15 years

• $20,000-$39,999.99 20 years

• $40,000-$59,999.99 25 years

• $60,000 and above 30 years

Hopefully some of these points will help you out while approaching student loan consolidation companies. At least some of your problems will be condensed when you are finished.

What Does It Mean To Consolidate Student Loans?

Consolidation of student loans means to combine several student or parent loans into one larger loan from a single lender, which is then used to pay off the balances of the other loans. It is very similar to refinancing a mortgage of a home, or guaranteed personal loans.

Consolidation loans are available for most federal loans, including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct Loans. And some lenders offer private consolidation loans for private education loans as well.

If you have decided that your monthly payments for your student loans have become unmanageable and you need help, you might then consider consolidating. If you are facing deferment and forbearance options, and/or want to avoid default on your student loans, then perhaps it is time to consider consolidating these loans for your protection and ease in life.

How Do I Begin To Consolidate My Loans?

By consolidating your federal student loans, you can obtain valuable money saving benefits and can lower monthly payments. Make sure that you understand what is being offered including any “strings attached” especially. This kind of transaction can save you money and is easy to understand, usually.

It is a good idea to check with each of your lenders. One hallmark of a great lender is one that offers you attractive money saving benefits and that also includes details as to when it becomes time to consolidate. Make sure that you review the complete application including all the detailed information on your loans before signing.

It is understandable that many of your loan details can be confusing, which is why the extra effort on your part or the lender you go with is necessary. The best lender will help you review and complete your application, and help you understand before signing. Your personal information is private and make sure your lender feels the same way.

All of the above information is important that is why I keep referring to talking and obtaining the “best” lender for you. One perhaps that you used for one of your prior loans or a new one who works only with consolidation of loans. Talk, interview, and talk again until you form a trust with that one person.

The Change In Interest Rates

The interest rate on a consolidation loan is the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest 1/8 of a percent and capped off at 8.25 percent.

Now if your have several loans with different interest rates, the weighted average will be somewhere in between. The weighted average does not fundamentally alter the underlying cost of the loan. It keeps the cost structure by including each interest rate to the extent that it applies to part of the overall loan balance.

Don’t be fooled if someone tries to suggest that this will save you money by getting you a lower interest rate. The interest rate may be lower than the highest of your present interest rates. However, it is also higher than the lowest of your interest rates. For all of the interest rate will be combined (the high and the low).

Due to the equaling out of the multi interest rates, most important, the amount of the interest you pay over the lifetime of the loan will be about the same. And this perhaps is the most important news of all.

There are some ways that you could potentially cut down on your student loans even before you leave school which many students do not even take the time to consider while they are pounding the books for A’s. It might require you to be creative with your student loan and how you handle your payments.

Don’t Be A Lemming With Debt

According to a study given by the National Post-Secondary Financial study the results showed that nearly two-thirds of college students struggle to pay loans and they unfortunately graduate with a bachelor’s degree and student loan debt of some kind. For undergraduates with federal student loans the average debt is nearly $20,000 coming out of school.

That is a lot of money that could buy you a nice new car or maybe a down payment on a house. Even after you find a student loan opportunity and even if you take it be willing to look for other opportunities out there for loan consolidation. There are going to be times during your 4 years at school where a better deal may pop up and give you better rates and easier payments.

Study For The Right Debt

There are plenty of private and non-profit student loans out there that are willing to offer loan consolidation that could save your skin when it comes to a loan. Many federal student loans have to deal with increasing interest rates. That translates only to more money coming out of the student’s pocket and more payments long term.

The last thing you want to do is worry about more bills along with utilities, rent or a mortgage, car payments, saving for a family of your own, and countless other things that come up. I studied my bills yesterday and I was shocked to see all of the random payments that you don’t account for.

Student loan consolidation could help you make larger payments with fix rates and get closer to attacking the principle. Where many students it could take 20-30 years, you may be able to get it done in 10 years or maybe even shorter. Just think to yourself what type of relief that will give you when you don’t have to worry about a long term debt like that any more.

Where To Go To Consolidate

Consolidating student loans can be done through the Federal Family Education Loan Program also know as the FFEL, along with banks, secondary markets, credit unions, and plenty of other lenders will provide those same benefits. These are all worthy options for you to take a look at during your four years in school. I know that is difficult for many of you because the last thing that you want to do is more reading, but I promise you that it will save you a lot of money down the road and create more freedom long term.

You will actually find out that many federal education loans are capable of being consolidated whether they are subsidized or not. Some of these include Stafford Loans, Perkins Loans, and Federal Nursing Loans. Whatever loan you may have, make sure to check your commitments or covenants in the contract.

This is going to be a simple start to defining what consolidation is and how it is done to help out with the financial situations of many students and former students out there. These terms will be important for any person to understand as you go through this web site.

Debt consolidation-

This means taking out a loan to pay off several other loans. The intention behind this is to secure a lower interest rate or to establish a fixed interest rate that otherwise may not have existed before. Some loans that are consolidated from several to one, really have the exact same rates, but the intention is to save time by focusing on just one loan instead of trying to pay off several loans. Debt consolidation can be transferred from several unsecured loans to an unsecured loan of some kind, but more often it is transferred to a secured loan.

Secured Loans-

The borrower pledges some asset like a car or property as collateral for the loan. If the borrower defaults (not able to pay the loan) then the debt may be satisfied by the lender taking possession of the object and by selling off the collateral to pay for the debt. This is legally done under the Bundle of Rights laws for property ownership.

Unsecured Loans-

This is simply any type of a loan where there isn’t collateral required in return for a loan in case the borrower was to default. These are often more difficult to get and require impressive credit to do so.

Collateral-

An object such as a car or a house that a creditor can repossess in case the borrower fails to make a payment on a loan. The lender can use the collateral and sell it to erase the debt or just simply keep it for their purposes. This portion of a loan contract may create a lower interest rate.

Default-

This is where the debtor has violated some form of the contract of the loan by not making a payment or violating some other condition in the terms. If they are simply unable or unwilling to pay the debt then the whole debt may be immediately required to be paid off and the creditor could take possession of any collateral.

Federal Student Loans-

The Federal Family Education Loan Program and the Federal Direct Student Loan Program consolidate loans from Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt to pay off. This means reduced monthly repayments, a longer term for the loan, and this will have a fixed interest rate. In essence this buys you more time and you have to spend less money initially.

These will be 10-30 year terms, and yes you will pay less initially, but eventually you will pay more down the road because of interest. The interest weight is calculated as the weighted average interest rates of the other loans being consolidated. These weights are rounded up to the nearest .125% and capped at 8.25%. This gives companies a more accurate average to the amount of the loans compared to the interest rates.