Although it is only February and many of you are just finishing up the FAFSA and related financial aid application required, it is not too early to think about paying the college bill that will come in this summer.
Hopefully you have completed all of the financial aid application requirements so that colleges can give you a financial aid award letter after being admitted to college. There are many types of financial aid programs available, however, in many cases a family will need additional funds to meet college costs.
In the event that a family will need to borrow through either the Federal PLUS Loan Program or a private loan program from a bank, credit union or state agency, these loans are based on credit. Applicants will need to pass a credit analysis in order to qualify for a private loan. Most families that need private loans will apply beginning in June, however it is never too early to plan ahead.
Before you begin reviewing private loan offering available from banks, credit unions and state agencies, it is important to understand the role of credit in the private loan process as private loans are not automatic financing options for all families. Private education loans from banks, credit unions, state agencies and private companies are credit based. 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 what interest rate is assigned to the loan. Ultimately, when talking about private loans, your credit rating is a very important determinant in the private loan review process.
Although lender analysis formulas are proprietary information and unpublished to the consumer, it is a worthwhile exercise to get a handle on your credit, regardless, as it is important to establish and maintain good credit for many reasons. A free way to get a sense of your credit standing it to request a free credit report from one of the three main credit reporting agencies. Annual Credit Report allows consumers to request a free credit report one time per year from EACH of the three main credit agencies, thus you can get three free credit reports each year.
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Be sure to check your credit report carefully to make sure there are no errors, such as credit card account standings or other credit history. It takes time to clear up your credit report and to correct any errors or discrepancies. Do NOT wait until you need to apply for a private loan to remedy a credit report issue as it takes time. Private education loan decisions are made at a certain time – if you have discrepancies then it could affect your chances for approval and/or the competitiveness of the interest rate. Start early and correct any errors you find on your credit report, if applicable. The strength of your credit is based in part on repayment history, thus missing a monthly payment can damage your credit standing.
