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| Hidden Dangers in Shopping for Student Loans |
Submitted by:
Tip Hero 07/25/2008 7:19 PM
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Ron Lieber of the New York Times has come out with an interesting story of students being penalized for comparison shopping when it comes to student loans. The crux of the problem is that each time a student requests a quote from a student loan provider that provider pulls the student's credit score. Fair Isaac Company (a.k.a. "FICO"), the organization that helps credit bureaus calculate credit scores may lower a persons credit score if they see a number of credit requests which sometimes is taken as a sign that a person is having financial difficulties. This can lead to a drop in a persons FICO score and potentially lead to students paying thousands more in interest payments.
The article argues that student loans should be treated like home or auto loans. Shoppers for these loans aren’t penalized for having multiple pulls on their credit report because Fair Isaac has determined through extensive data mining that these purchases typically require multiple pulls of a persons credit report and thus are not factor in lowering a persons FICO score.
Some advice from the article:
Get quotes from a student lender or two recommend by your college since it may have negotiated special terms with them.
Keep in mind that Fair Isaac believes that if there is any negative impact from having your credit score pulled it is likely to come from having smaller more specialized student loan firms pull your score rather than big banks.
Do your loan shopping within a week or two rather then spread it over months. This may lessen the risk of having your FICO score dinged.
I found this to be a very interesting article and well worth the read:
NYT: Danger Lurks When Shopping for Student Loans
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