No Credit Check Student Loan vs. Credit Based Student Loan

There are lots of student loan programs that are not based on credit review, like those of Perkins and Stafford who does not do credit checks to approve their loan. However it is quite difficult to get approved for such loans and if availed it does not cover the full amount required for the education program.

To benefit from more funds and better interest rate, students prefer to go for a student loan that is credit based. With better credit score, the loan officers provide more funds with better interest percentage and suitable loan features.

Under a credit based loan program, it is not absolutely impossible to avail a loan with poor credit history. However, with a bad credit score, it may be tougher to get a student loan and they are usually with higher interest rate. Hence a difference in the credit score decides whether a loan is approved or not as well as decides upon the extra amount you would end up paying for the loan with reference to one with better credit.

It is important to understand about the credit scores and how it is rated. FICO is a score that any loan officer would check in the first place while evaluating an applicant. This score is based on the credibility of an individual as rated by 3 credit agencies that collect the payment details from banks and other service provides to estimate the payment behavior of the individual.

The equation used to determine the score is not well known by general public, however the basic criteria are known to all. The score may drop down on every defaulted payment and currently outstanding debts. The number of late payments and the duration of late payment, such as paid in 1 month, 2 months and 3 months would affect the score appropriately. Even the credit balance and the number of inquiries on credit would all be reflecting in the score.

Most of the student would not have a credit score since they may not have a credit card or any other loans to provide date to the credit agencies to evaluate a score. For most of the student loan programs the score of the student’s parents are evaluated and that decides the approval of loan. Even if the student may have a score, the parent’s credit history also determines the interest rate as well as approval of the loan. A FICO score that is more than 650 would fetch a very attractive loan with minimum interest rate. A score that is lower than that would get a student loan, but only on providing supplementary information to substantiate the credibility of the applicant.

In addition to the credit score, the prospective borrowers should consider several aspects to avail a loan. Lenders may consider payments done on time. Deferred payments may reduce the chances of getting a loan substantially. It is important to avoid late payments and late payment charges and penalties from any credits. Lenders try to evaluate the character of the individual by checking on their payment history. Also if an individual makes credit inquiries it is an indication to the lenders that he may be struggling to keep up his debt load and it may also convey that he may not be able to take up the burden of further loans.

By increasing the balance amount substantially in the credit cards increase the credit score. The credit history is the ultimate basis on availing a student loan with good interest charges.