How Is a Student Loan Payment History Reported?

Federal and private student loans help millions to pay for post-secondary training needed in today's job market. Although loan payments can strain graduate budgets, they can also establish a good credit record that pays off in low rates on loans for major purchases. In 2008, 67 percent of graduates left school with a student loan, averaging $23,200 per student.

Federal Loans

Monthly payment history for subsidized and unsubsidized federal student loans is reported on your individual credit reports with Equifax, Experian and Transunion, the three major credit reporting bureaus. Federal student loan borrowers may receive deferment or forbearance periods under certain circumstances and these are also noted on credit reports. Each student loan received will be reported separately unless you apply to have them consolidated with Federal Direct Loan servicing or another loan service provider.

Private Loans

Private loan repayment history is also reported to the three credit bureaus. If you had a cosigner for the loans then your payment history will show on their credit reports as well. Good payment history is a plus for you and your cosigner but keep in mind that spotty payment history will reflect negatively on your cosigner's credit reports as well.

Consolidation

Multiple loans of any kind in your credit reports can make you look like you're over-extended. A consolidated student loan looks better on your credit reports and has the added benefit of lowering the amount that you have to pay out each month. Most federal subsidized and unsubsidized student loans can be consolidated into one direct consolidation loan. As a result of the U.S. banking crisis, private consolidation loans are harder to find in 2010, but like federal consolidation loans, private loans also bundle multiple loans into one to make them more manageable for borrowers.

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Do Unpaid Medical Bills Affect My Credit?

One way to quickly get over your head in debt is to get seriously ill. The cost of doctors, medications, treatments, therapies and hospital stays can quickly add up even if you have insurance. Meanwhile, at the same time you've been sick, your ability to earn a living has been hampered. Either one of those things could easily put you behind in your payments -- and both together can be crippling. Unpaid medical bills can't be ignored, though, because they do affect your credit.

How Doctors Handle It

When doctor and hospital bills go overdue, someone will contact the patient and try to arrange for some sort of payment to be made or to put the patient on a payment plan. When it's not the patient at fault but the insurance company, someone will be in touch with the insurer trying to get payment. Even if it is a problem on the side of the insurer, it will be the patient's credit score that is affected. Once the bills are 90 days overdue, then doctors and hospitals begin to send them to collection agencies. This is when the overdue bill affects your credit score and can indicate that you are a high risk.

How It Affects You

Although you may have unpaid medical bills on your credit record, they may not affect you. A lot depends on how the lender you are seeking credit with considers the overdue bills. In some cases, mortgage lenders will require that the borrower pays off high medical bills as a condition for loan approval. Regardless of how the lender views it, overdue medical bills will lower your credit score.

How Long It Remains

Once your overdue bills have gone to a collection agency and been reported to the credit agencies, then the negative mark on your record will remain there for seven years. After that time, you can ask for it to be removed if it doesn't happen automatically. In order for it to be removed earlier than that, you need to show that there was a factual error that led to it appearing on your credit report in the first place.

Your Options

If you have unpaid medical bills showing on your credit report, you can do one of four things to address the situation. You can pay the bill off, dispute it as factually incorrect, explain the bill with a statement that credit agencies will attach to your credit report or ignore it or wait for the seven years to pass.

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Can a Cell Phone Build Credit?

Cell phones are an irony in the world of credit: it takes good credit to get one, but paying your bill every month does nothing to build credit under the traditional model. As a response to the needs of many who pay bills on time, alternative credit-scoring companies allow people to self-report common utilities, like cell phone bills. Very few lenders, however, accept alternative credit scores.

Identification

As of 2010, the FICO scoring model used by the major credit reporting bureaus does not factor in cell phone payments, because most states have privacy laws preventing utility companies from sharing customer information. Also, monthly bills, such as for cell phones and rent, are not a true line of credit and the utility providers do not have a reliable way of reporting payment data.

Alternative Reports

The alternative credit reporting agency PRBC, formerly known as Pay Rent, Build Credit, allows customers to sign up for the service and self-report cell phone payments. The PRBC score may not help the creditworthiness of borrowers much, because only 800 lenders accepted this score as of 2010, according to Payments Source. Also, the FICO Expansion model factors in nontraditional payments and recurring bills. The Expansion score was released in 2007, but it may take some time before lenders consider it a good risk analysis model.

Potential

The major credit bureaus will probably eventually collect cell phone bill payments and other nontraditional information and incorporate it into the standard FICO model. In 2010, for example, Experian acquired RentBureau, the largest reporter of rental history in the U.S., and started listing that information on credit reports. The credit industry as a whole recognizes the profits to be had on the 50 million people who have no credit history but may pay bills like their cell phone on time, according to the Payments Source website.

Tip

People who do not qualify for a credit often use a secured card to build credit. Secured cards have a limit equal to the amount of money you put down on it and are very easy to acquire. Issuers of secured cards report to credit bureaus and might approve you for an unsecured line after a year or so of good payment history. You could build credit history by paying your cell phone bill with a secured line.

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Definition of Credit Scoring Brackets

A few points can cost you thousands of dollars over the lifetime of a loan, because lenders set interest rates depending on which credit scoring bracket you fall into. Credit scoring brackets or tiers are not always the same across all industries or even within them. Finding out typical scoring brackets gives you a goal to aim for when improving your credit.

Identification

Credit scoring brackets are charts lenders reference when setting the interest rate on your loan. A lender, for instance, might consider all scores above 770 the top tier and give anyone in this range the lowest rate. The next bracket would be 769 to 740 and receive the second highest rate.

Considerations

While lenders set their own credit scoring brackets, lenders usually consider anything above 720 to 760 the top tier because getting higher than this is nearly impossible, according to MSN MoneyCentral. Anything less than 620 typically falls into the worst bracket of scores -- known as "subprime."

Benefits

You will reap benefits even if your rate improves by a minuscule amount. On average, for example, raising a score in the range of 700 to 719 to 720 and above saves about $20 per month on a $250,000 loan. This, however, equates to a savings of $7,200 over the life of a 30-year loan, according to Kiplinger.

Tip

Edmunds recommends asking your loan officer about their credit scoring bracket and how it correlates to their interest rates in writing. Having a visual representation of credit score matrices can make comparison shopping easier for you.

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Does Having a Revolving Card That Is Unused Help My Credit?

If you have a credit card that you are not using at all, closing that credit card account is likely to hurt your credit score. Therefore, try to keep these unused cards to maintain your good credit score, as long as you can avoid the temptation to use them to overspend.

Utilization Ratio

The major way in which an unused revolving account, such as a credit card, affects your credit score is through your utilization ratio. This number is the amount of credit you are currently using divided by the amount of total credit available to you through your credit lines. For example, if you have an unused credit card with a limit of $4,000 and a credit card you use that has a limit of $3,000 and a balance of $1,500, your utilization ratio is $1,500/$7,000, or about 21 percent. Your utilization ratio should be no more than 30 to 35 percent to avoid hurting your credit score, according to the website Bankrate.

Effect of Canceling

If you were to cancel the unused credit card, this would affect your utilization ratio because you would lose the available credit on the card. For example, if you canceled your unused card with a $4,000 credit limit and were left with just your card with a $3,000 limit and $1,500 balance, your new utilization ratio would be 50 percent. This would hurt your credit, so in a way, keeping the unused card is helping your credit score from taking this hit.

Considerations

Credit card companies sometimes close inactive credit card accounts. Therefore, if you are depending on your unused revolving account to keep your credit score high, you should use it every few months to make a small purchase and pay it off immediately. This reduces the chance that the lender will close your account. If, on the other hand, you only have a $200 balance on your card with a $3,000 limit, canceling the unused card would only increase your utilization ratio from about 3 percent to about 6 percent. In this case, the unused card is probably not helping your credit.

Warning

Although having an unused card can help your credit score, opening the card can hurt your credit score initially. Therefore, opening a few revolving cards in an attempt to boost your credit score quickly is actually likely to backfire and lower your credit score instead. This is because each new credit score generates an inquiry on your credit report, which slightly lowers your credit score. In addition, the new credit card account lowers your average account age and reduces your credit score slightly.

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A Negative Bank Account Balance's Effect on Credit

Banks have a reporting system for accounts called ChexSystems. When they implement this system it does not affect your consumer credit rating, but a negative account balance can appear on your credit history in a few circumstances. Therefore, you should not risk your credit rating by assuming that your banking history cannot affect your ability to obtain credit.

Effect

The major credit bureaus do not track banking history or account balances, so a negative balance does not have an immediate effect on your credit rating. However, the bank can send the debt to a collection agency, sue you, or charge off the debt and report it to credit bureaus. If the balance appears on your credit history, it indicates a seriously negative account and can lower your score by dozens of points.

Considerations

While banking history does not directly affect credit, a negative balance can reduce the number of credit offers you receive from your bank. Banks often send credit offers to customers that have a long, positive history with the institution, so overdrawing could put a stop to those offers. This could be especially harmful if you have a short credit history, or none, and hoped to use your relationship with your bank to leverage a first credit card.

Preventing Overdrafts

Ideally, you should keep an eye on your account balance so that you never withdraw more money than you have. However, banks usually offer overdraft protection services with a small line of credit to buffer an overdraft. You can also link accounts at the same banking institution for a smaller fee, suggests the Federal Deposit Insurance Corporation.

Warning

Banks often check your credit history if you request overdraft protection because they consider it a small loan. A credit inquiry incurs between zero and five points of damage to your credit score. This may not seem like much, but more than six inquiries within a year is a red flag to lenders. The bank may also perform a credit check if you need to open a new account.

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Is a Cell Phone Plan a New Line of Credit?

You cannot get a cell phone contract with most providers unless you have good credit, but this does not mean that credit reporting agencies view cell phones as a line of credit. Cell phones can affect credit, but almost always only for negative reasons. On the plus side, because cell phone plans are not a line of credit, they do not affect your debt load in the eyes of lenders.

Identification

The big three credit reporting bureaus in the U.S. do not receive data on cell phone bills from most carriers, nor could they because of state privacy laws regarding sharing information on utilities. Thus cell phone contracts are not considered a new line of credit. Cell phone providers, however, can run a credit check on applicants. This credit check will generate a "hard" pull with the credit bureaus and ding your score a few points like an application for a credit card or mortgage would.

Building Credit with a Cell Phone

Some companies specialize in reporting information about payments ignored by the major credit bureaus, such as cell phone plans. One of the major alternative reporting agencies is PRBC (Pay Rent, Build Credit). The problem with alternative credit reports is that very few lenders accept them and the agencies usually charge consumers for this service. Thus, cell phones are impractical if you want to use them to diversify your debt holdings or build credit.

How Cell Phones Could Affect Credit

Stop paying your bill long enough and the cell phone company could send your account to a collections agency or obtain a judgment in civil court. Any type of public judgment will do major damage to your credit score. Some cell phone companies, such as Verizon, are starting to report payment history to the credit bureaus to help customers build credit and to motivate more customers to pay on time.

Tip

If you hope to use a cell phone to build credit, you should ask the cell phone provider if the company reports to any of the credit bureaus. Otherwise, you might benefit from a carrier that does not report to the bureaus in case you miss a few payments. The application for a cell phone, however, entails much of the same process as underwriting in the lending industry. The provider will want to see a stable job history, low balances and no negative information. You could qualify for a cell phone with bad credit, but it may mean you have to pay hundreds of dollars on the security deposit.

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