For Student Credit There’s a “Perfect Storm” Looming
Warning, there’s trouble ahead. There’s a strong chance that a serious batch of credit problems are headed straight for students which threaten to swamp their ability to get student loans and credit cards. A series of changes in the economy could result in student credit scores dropping more than 100 points overnight as well as those of their cosigners. On top of this lenders are battening the hatches by raising credit requirements. If student credit scores drop at the same time requirements increase its going to sink millions of students who rely on student loans and credit cards to help them through college. The storm is a product of the struggling US economy and the mortgage crisis.
Rolling Thunder: Dropping Credit Scores
FICO 08, the new credit scoring formula Fair Isaac (creator of the FICO formula) is pushing out to the major credit reporting agencies is expected to drop the credit scores of more than 75 million consumers, many of whom are students. The new formula is specifically targeting some activities used to build credit such as being an authorized user on another person’s account. It is also going to be much stricter about repeat late payments and also about not having a good mix if different credit trips which students usually don’t. Fair Isaac is doing this in response to fall out from the mortgage crisis. See the article What FICO 08 Means for Students for more details.
Lightning: Lender’s Raising the Bar for Credit Score Requirements
All lenders including those that offer student loans and consolidation loans as well as credit cards are becoming far stricter about what scores they require for approval. This means that you may have been approved a year ago and now very soon you could be declined with the exact same score. Lenders are doing this in response to the tightening of the economy.
Punishing Wind: Cosigners Not in Any Better Shape than Students
Traditionally when a student’s credit score is too low to qualify for a loan, they have the option to apply again with a cosigner. There are also standards for what the cosigner’s credit score must be and these are generally pretty high. Now with the lender criteria raising cosigners are also going to experience the impact of credit scores dropping due to FICO 08. This means suddenly you might have a serious problem even getting a cosigner.
It All Adds Up to the Perfect Storm
We can see a scenario where your credit score drops below the level needed to get school loans, you then will not be able to get a credit card to help rebuild your credit or a school loan. When you try to use a cosigner to at least get the school loan, their credit may also have been effected (remember this is going to hurt over 75 million people!). This could leave you in a really bad situation through no fault of your own.
How to Stay Afloat
The best advice we can give you now is to find out what your credit score is, expedite applying for any loans or credit cards you had been intending to apply for before your credit score potentially is hit and finally if you haven’t already, start educating yourself about your FICO Credit Score and take steps to improve it right away.
StudentPlatinum.com offers the Student Credit Forum for your specific questions as well as the Student Credit Education directory and reviews of the top Student Credit Cards. For help acquiring student loans or consolidation loans you can visit our partners at the Student Loan Network.
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As I entered this blog site I had to come through 5 credit card offers, probably high interest cards that pray on students that have little money. In my opinion this is preditory lending and should be stopped These credit card companies are AT FAULT for the worlds monetary crisis today. They suck out every last penny the student has with their hidden fees, late charges, and high interest rates. I feel for the non-suspecting student who actually applies and receives one of these credit cards. Thank you
[...] You Can Use + The perfect storm of consumer credit issues + By co-worker Mark Marquis at Student Platinum + Be sure to read tips on how to clean up your credit [...]