Be Aware When Comparison Shopping for Student Loans
Monday, July 28, 2008
The New York Times had a great piece this past Saturday about comparison shopping. The gist of the article was that student borrowers should be careful about applying for too many student loans. It turns out that if you apply for a number of student loans, you may actually be hurting the student's Credit Score.
How Pulling Credit Reports Can Affect Your Student Loans
Student Lenders pull your credit score when you apply for a student loan so they can evaluate your creditworthiness (i.e. how likely you are to pay back the loan). As the article points out, each request for a score report may cause a slight increase in your credit score. A borrower applying for multiple loans may be an indication to a student lender that the borrower has some financial troubles. A shift in your credit could increase the cost of your private student loans by hundreds or even thousands of dollars.
Impact on Your Search for Student Loans
Let's make sure we are clear on what this means, though. This isn't a recommendation for you to skip doing your homework on student loans. Sites like Student Loan Toolkit allow you to compare student loans without pulling your credit. It also does not mean you should only ever apply to one lender. You probably just want to avoid the shotgun approach of applying to as many student lenders as possible to see what they all offer. A better approach would be to narrow down your options to 2 or 3 lenders you feel may be the best fit for you.
How Do You Know If Your Credit Report Is Going To Be Pulled
A site that plans on pulling your credit report must follow strict procedures. One of these procedures is that they must always ask for your permission. Make sure your read the find print so you know when a report is being pulled. If a lender or loan comparison site asks for your social security number, that is typically a sign that your credit report will be pulled.
Labels: Private Loans
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