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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 those debts are paid off 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.

What Is Good Or Bad Credit?

When a student has graduated and been thrust into the job market, the prospect of having a student loan payment due every month can put a real dent into ones lifestyle. Entry-level jobs after graduation often do not pay much and that is when new responsibilities begin.

Graduates leave a life style of paying a small amount for rent and food and begin looking for homes, clothes for a new job, cars for that job and other necessary requirements to begin their new life, and of course, repayment for that school loan.

This is when many people make poor decisions and get into trouble affecting their present and future. Some former students after a while, are faced with defaulting on their student loans, others take out more and more credit cards or loans to keep going.

What students should remember is that they need to start out very slow and live similar as to college life until their wages increase to the point where they can add to their new after college-life-style.

Student loan Consolidation is something former students might have to look into where all loans are consolidated into one, with a lower payment, extended over a longer period of time, yet more interest will be paid out. However, this would help preserve ones credit until wages increase and life is more settled.

How Poor Credit History Affects Your Life

As you grow older and need help with a loan the first issue any loan office will examine is the FICO score. The FICO is a total score calculated by the main credit agencies based how late payments were made such as 30 days, 60 days or longer. Also, the amount of credit available, the number of credit inquiries and other factors are all added up. A default payment on a secret proprietary formula, though the exact equation is not public, multiple criteria are well known and even obvious.

FICO scores are calculated mostly on debt defaults and the amount of late repayments. Both of these are counted very heavily against you. Next is the number of personal credit inquiries, which are counted against you but less.

A range of students will not have much of a FICO after college, unless they overused credit cards. It most likely starts when repayment of student loans begins. That is why it is important to start out from the beginning establishing a good credit record.

This is where the importance of repaying your student loans on time, on a regular basis is so important. A negative history of the above is evidence of a poor credit risk in the minds of the lenders.

Also, staying within your available credit limits, avoiding over limit and other costs shows a disposition to defer current gratification and take responsibility. Creditors are judging not just numbers but also character as well in any decision.

Meet all of your credit obligations and keeping all borrowing to a modest level for a period of time makes you look like a very good risk to loan officers. This means funding any student loan will be that much easier. Keep this in mind when considering any student loan consolidation.

Many students fear that they won’t get a student loan or a good rate with a student loan because they have little or no credit and it is a valid question. I am going to take a look at a few different types of loans and some things you can do to improve your credit.

Stafford Loans

There are no credit checks done for a Stafford Loan when subsidized or not. You are limited in how much they can give you based on your age and circumstance. If you are a freshman you can get $3,500, Sophomores $4,500, any other year $5,500. If you are over 24, or married, serving for the military, or if your parents are struggling with their own finances and credit then an additional $4,000 could be offered.

Perkins Loans

This is where the worse your situation is the better you are. They will look at your credit, your financial income, your parents financial situation, and anything else that can give them a good idea if you are struggling or not. I suggest that you go to your financial aid office to find out information on what they can offer you, but it could be up to $4,000 to help you to get going.

PLUS Loans (Parent loans for Undergraduate Students)

This is something that your parents are going to be checked and not you. This could very well cover the remaining portion of your tuition or other school funds to help you move through your education without having that responsibility on your shoulder.

School Certified Private Loans

This is an example of where your credit will matter. You are going to need to have a minimum of a 620 FICO score to get the student loan for the entire process. Otherwise I would look for a parent or a trust friend or family member that is willing to trust you with their credit.

Direct to Consumer Private Loans

So many people look for loans like this because not only is tuition taken care of but funds are sent directly to the student so you decide how the funds are spent on room and board, food, school supplies, dates, etc. Many schools also give direct loans to students, but whether it is private or federal student loans, you are probably going to want to make sure you are in the 700’s when it comes to your credit. This shows you are responsible, so don’t screw it up. This also may be a good example where you should be extra kind to mom and dad to get some co-signing help.

How To Improve Your Credit

Some of you may have some time before you have to worry about this or there may be some parents out there that want to help their kids out by making sure their credit is good enough that they don’t have to co-sign. One of the best things that you can do is get a credit card and use it wisely. Make normal purchases on it that you can easily pay off with your own funds. Make sure you never miss a payment. Set up an automatic payment system.

The next thing you can do is make sure that you get a checking account and start paying some bills like a cell phone bill or rent or whatever. This may take a few months or maybe a year, but it is worth it and you are going to buy stuff anyways. It might as well be noticed by national credit bureaus. If you can make sure to make even multiple monthly payments to help your credit score improve. You would be surprised what it does if you make weekly and bi-weekly payments.