How Does Credit Affect my Loans?
Many students use the Grad PLUS or private education loans to fill the gap between the actual cost of attending graduate or professional school, minus the amount of federal aid you are receiving. Therefore it is extremely important to maintain a good credit history so that you can borrow the Grad PLUS or private educational loans you may need for a portion of your graduate or professional school costs. The information in your credit report may have a substantial impact on your eligibility to obtain Grad PLUS or private alternative loans.
Before you apply for the Grad PLUS or private alternative loan it would be wise to request your credit report from one of the national credit agencies. It is important to know what your credit says about you, there may be adverse or negative information that may or may not be correct so it is important to know what your credit says prior to applying for a loan.
What Kind of Credit Do I Need?
Graduate PLUS and private alternative loan borrowers cannot have an adverse credit history, which includes: 60, 90 days or more delinquency on any debt, or having a credit report that shows default, discharge, foreclosure, repossession, tax lien, wage garnishment or write-off of a Title IV debt
during five years preceding the date of the credit report.
NOTE: Graduate and Professional Student PLUS loans do not use any kind of a debt-to-income ration or FICO score, unlike private education loans.
If you are not approved for a Grad PLUS or private alternative loan you will need to get a co-signer. A co-signer agrees to the responsibilities of a credit application with you, which basically means they take on the liability for your debts. Your co-signer must be a US citizen or permanent resident and credit worthy.
NOTE: The consequences however for not being able to obtain the Grad PLUS loan or private alternative loan on your own or with a co-signer could impact your ability to have the funds necessary for living expenses, as your Direct Unsubsidized loan(s) does not cover your entire budget amount.
Your Credit Score
Credit scoring is a quick, accurate and consistent method of determining the likelihood that you will repay your loans. It is an evaluation tool that determines how well you will manage credit, relative to other borrowers, based on your past credit performance.
Some examples of negative factors that affect the credit score are:
- serious delinquencies or collection accounts
- proportion of revolving balances to revolving credit limits is too high
- too many new accounts
- too many accounts with balances
- too many credit inquiries in the past 12 months
If you are denied credit, you have the right to know which factors reported on your credit history caused the greatest influence on your credit score. The lender that has denied you credit will notify you in writing about these factors, along with the name of the credit bureau that provided your credit report to the lender.
NOTE: Having multiple education loans and/or a large amount of education debt does not preclude your scoring well. People with small and large amounts of debt and with or without income can score well provided they have properly managed their debt.
The Importance of Good Credit and Credit Tips
Maintaining good credit will insure your eligibility to obtain Grad PLUS or private alternative loans when needed through out your Graduate and professional education.
- Make sure you develop and follow an affordable monthly budget.
- Avoid charging more on your credit cards than you can afford to repay in full each month.
- Limit the number of credit card accounts you maintain.
- Minimize your credit card debt.
- Be careful about opening new credit card accounts.
- Pay all your bills on time.
- Obtain a copy of your credit report at least once a year and review it for accuracy.
Getting a PLUS Loan
To get a PLUS loan you must first submit the Free Application for Federal student Aid (FAFSA). To qualify for a PLUS loan, you must be a U.S. citizen or eligible non-citizen, and be enrolled at least half-time.
After you submit the FAFSA, the financial aid office will notify you how much financial aid you qualify for, including the Direct Unsubsidized loan. Because the Direct Unsubsidized loan has a lower interest rate and other advantages over PLUS loans, borrow as much in Direct Unsubsidized loan as you can. The gap in your budget will be awarded in the Grad PLUS loan. Because you have to pay back what you borrow, along with interest, borrow only as much as you need in the Grad PLUS loan as it does have a higher interest rate. Go here to check current interest rates: Direct Loan & Counseling
You can obtain a free copy of your credit report from one of the three national credit reporting agencies once every 12 months.
- Fair Isaac and Company – For more information on credit scoring or to purchase your credit score and report
- Federal Trade Commission – For free publications about credit or help with credit reporting problems. (877) 382-4357 .
- Bankrate.com – For information on all aspects of credit and personal finance, or estimate your credit score range free of charge.
We would like to acknowledge the following who helped to contribute information for this brochure: FinAid.org, Access Group, EdFund, and Great Lakes.