Does Paying My Bills on Time Build Good Credit for a Student Loan?
The cost of college is high and many people must take out loans in order to make it work. In order to get a traditional loan, you need good credit, but student loans have their own rules. Nonetheless, you may want to increase your credit score to get a good rate on a private loan, and paying on time is one way to do this.
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Your Credit Score
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Your credit score is a measure of how financially responsible you are and how likely you are to repay a loan. According to myFICO.com, 35 percent of your credit score comes from your payment history -- whether you pay on time. As you continue to pay your bills on time, you can improve your credit score. Note, though, that not all of the companies to which you pay your monthly bills will report to the credit agencies. For example, landlords and utility companies do not report, while mortgage lenders or credit card companies do.
Government Loans
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The government offers student loans through the Stafford, Perkins and PLUS programs. Your loan amount will be based on your financial need. Your credit score does not come into the equation. However, FinAid states that PLUS loans for parents are not available to those with an adverse credit history, which is different from a credit score.
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Private Loans
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Private lenders do look at your credit score in order to decide whether to give you a loan or not, as well as to determine your interest rate. In this case, it's smart to try to improve your credit score, which you can do by paying your bills on time.
Adverse Credit History
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The PLUS loan for parents and some private lenders will look at whether you have an adverse credit history. They define this as being more than 90 days late on one or more of the lenders on your credit history. The better your payment history, the more likely you are to qualify for a student loan.
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