Do lenders view student loans just as they do other debt such as credit cards?
Basically my question is this: In a lenders eyes and for credit reporting/scoring purposes, are all loans viewed equally? Other than the commonly lower interest rates on student loans, is there any reason more attention should be given to credit cards and other loans when constructing a debt-reduction program? What are the pros and cons?
Some people seem to missing the point of my question (Hope). My credit is fine though I do have student loans for my undergrad and graduate education. I pay ALL of my bills ON TIME. I know lenders look at a debt-to-available credit ratio. I also know this is a variable in the formula they use to calculate your credit score. Because often times student loans are a necessary evil whereas credit cards aren’t, is there any difference in how their viewed for those purposes.
If you are trying to consolidate, a potential lender is going to be more interested in your payment history and in the number of accounts you have rather than whether it is credit card or student loan debt. They also look to see if you are just carrying balances and paying the minimum each month or if you are cutting the actual debt by paying down the principle owed.
Credit card interest is usually a lot higher than student loan interest and therefore, paying cards off first and getting yourself a lower rate on your outstanding debt is a really good idea – it can save you thousands of dollars depending on your balances. Also, credit card companies don’t like to give you deferment, forbearance or alternative payment plans which is another good reason to take care of them first.
Student loan lenders are often easier to deal with as long as you don’t get behind in payments. They will grant forbearance or deferment and can offer graduated payment plans or reduced payments for a time. But be careful if you have to ask for forbearance or deferment on your student loan. They can capitalize the interest accrued during the forbearance (meaning that amount of interest gets added to the principle of your loan and you then pay interest on it).
If you require forbearance, try to make at least a small payment each month. It will cut down on the amount capitalized at the end.
Whatever you decide, good luck. You are going about this in the right way and it will only help your credit later on when applying for a mortgage or car loan.
