Credit Rating and Student Loans

Dear American Student Assistance:

I am curious about some loans I have taken out. I have some private loans, one from the school and some others although I’m not sure exactly how many total loans and what kinds I have. Basically, I am wondering if these loans are affecting my credit in any way. I have been paying them when due. I would also like to buy a home soon. Will my student loans have any effect on my eligibility for mortgages, credit lines, and/or loans to prevent me from buying?

Thanks for your help,
Sean

Dear Sean:

Your student loans, when paid on time, are for the most part a good thing for your credit rating. When a mortgage lender (or other creditor) looks at your credit report and sees a prior debt that has been paid as agreed, it says to the lender that you are a good risk as in the past you’ve paid you debts on time.

The only time student loans can work against you is when the creditor is determining what’s called your debt-to-income ratio. For example, if you bring home $1,500 a month but your debts call for monthly bills of $1,000 per month (which doesn’t include food, gas, etc…), a lender will hesitate to increase your debt level as the likelihood of you having the capability of making the added payment is slim. So if your student loan debt is already a big chunk of your income, they may question you about it.

The good news is that with most student loans, there are ways to lower or even postpone the monthly payments temporarily, which may appease the mortgage lender. In summary, your student loan debt will more than likely assist you in getting your mortgage. 

Please keep in mind, however, that ASA's focus is on student loans, not comprehensive financial planning, so you should talk to a mortgage lender personally to find out where you stand. Best of luck with your new home purchase!

This document was prepared for informational purposes only and cannot be considered credit counseling advice or otherwise. Please see your credit counseling professional for additional guidance.

Regards,
American Student Assistance

Your Rights and Responsibilities

When you sign a Master Promissory Note, you sign a contract -- one that states you will repay your student loans. Understand your rights and responsibilities as a student loan borrower.