Short version: Hello, I’m financially clueless. What should I know about debt/credit ratings?
Long version: I know the basics: debt is bad. Spending more money than you have is bad. Credit cards can be dangerous if you don’t abide by the first two rules.
I have one credit card, which I got by opening a student checking account. I carried a balance for about 8 months or so last year, but got that paid off entirely this past September. I once made one payment late by a few days, for the same reason why I ran up a significant balance to begin with (I’m young and stupid). For a few months I only made the minimum payments (see above re: young and stupid [and broke]). I never came close to maxing out my credit line, which was randomly nearly doubled the first time I carried a balance month to month. I don’t intend to use it for anything but emergencies, ever again, because I have learned my lesson.
I also will be graduating next year with a massive (>50 grand, no that’s not a typo, again see above re: I’m an idiot [and chose an obscenely expensive school]) amount of student debt. I’ve heard that, somehow, debt from student loans isn’t as bad as other debt, but I don’t know how that works. Obviously I intend to pay it off as fast as humanly possible, but I assume that even after it’s paid, it will remain on my ‘record’ as “This kid once had over fifty grand in debt! Holy crap that’s a lot!” or something.
Is there some formula to calculate your credit rating? Are different debts weighted differently? Is the fact that my bank hasn’t increased my credit line for my card since before a bad sign? Am I worried over absolutely nothing? How will my existent debt affect me if I need to take out another loan for grad school? What if I want to buy a car or something in the future? And so forth…
By law, you are entitled to a free credit report every 12 months.
There are quite a few web sites out there willing to help you obtain your free credit report, for a fee. You do not need them, nor spend any money.
This web site —> Annual Credit Report.com - Home Page is the only web site that is authorized by the three major credit reporting companies to offer your free credit report - no fees and no hidden strings attached.
The fact that the agency hasn’t increased your credit line is probably a factor of you not having an income rather than your credit rating.
To me, it sounds like you’re worried about nothing. Making your payment a couple days late is a relatively minor issue. From what I’ve heard, late payments aren’t likely to effect your credit rating AT ALL unless they’re more than 30 days late.
$50,000 in student loan debt might be an issue if you plan on taking out any big loans (car, mortgage, etc.) but not a real big problem. Your biggest problems now is lack of income, and lack of a credit history. So find a job and start making payments and you’re good to go.
Having debt in and of itself won’t hurt your credit rating. There’s nothing “wrong” with having debt, where red flags will go off is if you have a ton of credit card debt, aren’t making regular payments and et cetera. Basically if you show a pattern of not paying your debt-obligations when they are due, that’s going to be a red flag.
Obviously a reputable lender won’t give you a loan if they think you can’t repay it (for example if you already have $50,000 in debt and don’t make very much and want to take out a $150,000 mortgage–don’t hold your breath), but just “having $50k” in debt isn’t bad or good. Sometimes there’s a good reason to go into debt, it’s definitely the case when it comes to education. It’s not reasonable for a young person with only a High School diploma to save up all the money they need to pay their way through college before they enroll. If everyone did that then many people would spent ages 20-~30 working at McDonald’s before ever starting on their “real” career path.
The average amount of debt for a graduating college student has been going up and up over the years, $50,000 really isn’t an insane amount by any means. I’ve known people who received their bachelor’s and were more in debt than that (worst of all a lot of people might leave with $40,000+ in student loans plus another $10,000 or more in high-interest credit card debt.)
I once applied for one of those “buy now, pay off later” things some stores do, knowing full well I’d pay it off before incurring interest debt. But they called the finance institution, and they said “No!” and they wouldn’t tell me why. All I could think was that my credit rating was so good, they wouldn’t make any money off me. So I paid for the item in full right away, the method I usually prefer anyway (I figured I’d try the offer, as my friend was doing it that way at the same time as me).
There’s a good start. Notice when it lists the amount of debt, it qualifies it as a ratio. For example, I have a few grand on my credit cards, but it’s not a big deal, because my limits are much higher. In the types of credit used, student loans count as “good” debt, while credit cards count as “bad” debt. Recent searches is superficially related to length of credit history. I have nearly as much student loan debt as you, and was able to secure a car loan without a problem.
Check out Dave Ramsey. I have his book, “Total Money Makeover”, if you’d like to borrow it. He’s got some great ways to get on the right track. I was doing pretty well with his system for awhile, it’s actually really good.
ETA: Heck, you can have it if you want. I bought two copies last year because they were half price. I’m looking at one in my office right now, and one’s floating around somewhere.
Good to know. I do have a job now (there were just a couple months when I didn’t last spring), and the credit card is paid off in full. Even if I could afford to I don’t know that I could start making payments on my student loans yet.
What mostly triggered my sudden obsession with the issue is I’m starting to look at grad schools, and if one of my potential plans comes to fruition, I’ll probably need to take out another loan.
My guess is you shouldn’t have a problem at all. I’m not in the industry, but personally I’ve never heard of anybody ever getting turned down for a college loan. College graduates incur huge debts and generally end up with a much larger income with which to pay them back. Add in the fact that even bankruptcy can’t get you out of your student loan debt and it’s a credit company’s dream.
Not to mention many time’s they’ll pay YOU to go to graduate school if you’re willing to run labs and teach classes so you might not even need them.
