Credit Scores and Business School Loan Qualification

Question

Just curious if any credit gurus out there know what is the minimum credit score necessary to qualify for a Stafford loan, CitiAssist business school loan and/or home mortgage as full time MBA students? I have been outside of the US for quite some time now so my credit is reported as borderline "fair-good." No collection accounts, key derogatories, charge offs, bankruptsies, tax leans etc. Just basically an inactive account other than consistent repayments on undergrad loans.

Thanx in advance.

rhyme · Answer

Whats your FICO?

aaudetat · Answer

Ugh, does anyone remember how a long time ago I promised to post a big long personal finance tutorial? Well, I forgot, but GMATT's post made me remember.

The super-short skinny to all of you thinking about your credit reports:

1. Pull them. All three. https://www.annualcreditreport.com. Easy to read and interpret, free from the 3 main bureaus (transunion, experian, equifax). You don't get a score unless you fork over about $8 per report. Probably worth it for at least one.

2. If you have any collections, pay them now! Judgements, ditto. Bankruptcies: sucks to be you. Those things take 10 years to fall off. I don't know how student loan lenders view bankruptcies, but some mortgage lenders won't touch you with a ten-foot poll. Others make you wait just a couple years. (Others get you to buy a house, put your life on the line, and then default, so they can swoop in like evil vultures and take back your house. In other words, beware of the predators.)

3. Pay on time, every time. It's like "2 legs bad, 4 legs good" -- memorize it, repeat it, and act on it. (P.S. If you're late less than 30 days, it won't hit your credit report, so that's the good news. The bad news would be the fees, exploding interest rates, and a little thing called universal default. But I won't go into that.)

4. Don't max out. Another maxim for you. You definitely want all of your revolving accounts to be at less than roughly 70% of the total credit limit. I have to admit that the credit bureau folks don't like to get too specific on this kind of thing, so that's just a generality. But you definitely don't want to look like you're using up all of your credit capacity. Capacity is King.

5. If you don't have any kind of history, consider getting a share-secured loan of some kind, or perhaps department store credit. Beware! Watch for predatory jerk-offs and your own inexperience. Credit is a double-edged sword -- important, but potentially harmful.

6. A quick note on credit scores: the mortgage industry GENERALLY requires a 620. Lower than that, they're gonna split hairs with your credit history and other aspects of your application, and probably charge higher rates. I don't know what the student loan industry looks for, but I would guess it's similar. I'm a fan of being at 650+. 700 is better. (it's like gmat scores.)

Ok, I am so tired I can't see straight - why am I on GMAT Club right now? That's to say, if this doesn't make sense, let me know and I will elaborate.

P.S. To those of you who don't know -- one of the things I do for a living is financial counseling. I could blabber about this stuff all day.

GMATT73 · Answer

This is really encouraging news aaudetat, thank you. Coincidentally, my credit score happens to be just a few points higher than my GMAT, in the mid 600s. Not good, but not bad either, just inactive because I have been an expat for (gulp) 5+ years. I have perfect credit here in Japan, but as we all know that means JACK DIDDLY SQUAT back home.

The big question is, do banks generally approve home loans to full time MBA students who can put down say, 25%? I'm not coming over with suitcases filled with cash, but I have stashed away enough to get through two years. Do mortgage lending companies have a special finance opportunity for students enrolled in professional programs?

BTW, the freecreditreport.com website is definately a good place to start if you are clueless about your current credit standing. As aaudet mentioned, you get one score for free and another two for about $24. I highly recommend it to anybody who is considering borrowing over these next few years.

One thing is for certain, if you have a tax lien on your credit record, you WILL NOT qualify for a Stafford Loan Plus (anything over $18.5K p/year). A friend of mine currently studying at b-school found that out the hard way.

rhyme · Answer

Universal default is evil stuff. My fico score rocks.

aaudetat · Answer

Buying a home is a bit like applying to grad school -- the underwriters look at several criteria, and if one isn't overly-hot, others can make up for it. In brief: 1. Credit score, as discussed above. 2. Credit history. I list this separately as you can have a decent score, but scanty history. (I worked with a guy who was only 6 months post-bankruptcy but had a 650.) 3. Debt ratio -- Rule of thumb: your debt ratio (the percentage of your monthly gross income that's going toward your payments each month) should be under 40%, once you add the mortgage and escrow payments in. 4. Work history -- most places are looking for at least two years in the same employment. Some lenders will consider job switchers who change companies but who stay in the same industry as meeting this requirement. 5. Down payment. If you don't put down 20%, you have to pay an additional amount toward Private Mortgage Insurance (PMI). These low-downpayment loans are riskier, so you have to pay into this default insurance pool. If you put at least 20% down, or even more, your downpayment will be considered a mitigating factor. As a student, each lender will have a different set of underwriting guidelines. Some won't mind your exploding student debt, especially since you're not paying those debts right now. Some will count your student loans as income. Some will tell you to take a long walk off a short pier and come back when you've got a real job. And they'll all approach your student status differently, depending on how well you perform in the other areas. No no no! Go to www.annualcreditreport.com and nowhere else. This site was created after the FACT Act was passed, which required the 3 bureaus to allow access to one report from each bureau per year per person. The reports at this site are completely free and with no freaky strings attached. There are many other sites out there that range from being a bad deal to a total scam. At annualcreditreport.com, you get all three reports for free. No, you don't get the score unless you pay for it (around $8 each), but you honestly don't need the score. The rules I mentioned above still apply - if you have a collection, pay it. If you were late, start paying on time. If you have no history, open a beginner account. Your score shouldn't determine the actions you take. BTW - pull all 3 reports. You might have something nasty on one that isn't on the other two. If you're just doing an annual check to make sure everything is reporting correctly, then pull one every few months, so you can get a regular status check. If you have something big coming up, like buying a house or going to grad school, then pull all three now so you have time to address any issues. Oh, and if you want to find out more, my favorite credit resource is "Understanding Your Credit Score" at https://www.myfico.com/Downloads/Brochures.aspx#uycs.

pelihu · Answer

It hasn't been mentioned, but the Federal Stafford loans ($18,500 per year) are not credit dependent. As long as you don't have a prior student loan default pending (I believe it is OK if it has been paid), then you qualify for the Stafford loan.

aaudetat · Answer

Good point. Neither are Perkins loans, but Grad PLUS and the various private loans are.

dvannier · Answer

While not on topic, I figured I might as well ask while there seems to be a credit guru here. What credit score is generally required to get the 0-.9% etc financing offered on car commercials? While I am not really in the market for a car now, I have always wondered what they are talking about when the commercials boast their tiny print  subject to special terms / A+ credit tier required.

aaudetat · Answer

Well, who knows what GMAC & Co are looking for. But for us, the top borrowers are above 740, with the next group above 700. For those fancy offers you see on TV, it's probably somewhere in there.

eazyb81 · Answer

I've already applied for FAFSA, but should I go ahead and apply for GradPLUS loans now as well? I wish there was a timeline available on when we should handle all this crap during the admissions process.

GMATT73 · Answer

According to the admitted student homepage, the sooner we apply for all this the better. I got FAFSA in as well (only took a few minutes). As for GRADPlus and Stafford Plus, I need to see how much of a merit/need based scholarship my school is offering.

squali83 · Answer

What is a GradPLUS loan? I thought the PLUS loans were loans parents took to finance for their children?

GMATT73 · Answer

https://www.edamerica.net/money/loanoptions/gradplus.htm

squali83 · Answer

Thanks, I was totally unaware that we could borrow through this medium prior to now. This is a great bit of info.

aaudetat · Answer

https://www.gmatclub.com/phpbb/viewtopic.php?t=41568 Guys, check this out.

EconGirl · Answer

Since I am not a moderator on this forum, can someone make this a sticky? It is a ton of useful info (thanks aaudetat!!)

Praetorian · Answer

aaudetat is too kind. I made this a sticky.

GMATT73 · Answer

OK Aaudetat, let's assume the average Jane Doe pulls up her credit record and receives a 650 (fair), where would she be standing in the GradPlus loan game assuming she has a clean sheet, average income of say $60K for the past 5 years, and will report $0 income for the next two. 

Distribute? Partial distribute? No distribute?? (Assuming Jane has maxed out on the $18.5 annual Stafford loans).

aaudetat · Answer

Say what? Sorry, I'm not following. (You see, I don't listen. I only lecture.) :wink:

Credit Scores and Business School Loan Qualification

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