Student Loan Inquiries and Your FICO Score

FICO credit scores do not penalize you for shopping for the best student loan deals.
Student loan inquiries from multiple lenders are assumed to be "rate shopping" rather than multiple debts.

So, be sure to do your rate shopping to find the best deal...your FICO score will be just fine.

How do student loans impact my credit reports and scores?

Student loans are considered an installment loan, which is the same category that includes mortgages and auto loans.  If the loan is deferred, it is still reported on your credit report and is classified as “deferred student loan”, which is considered in your credit scores.

 There is no credit limit reported on a student loan. If you default on the loan, the negative information will stay on your credit report for 7 years from the date you pay the loan.  

Student loan payments not made for 270 days are considered to be in default, unless arrangements are made with the lender. 

What recourse does the lender have if you default on student loans?

• Tax refund – The IRS can take your federal income tax refund until the loan is paid. This is the most popular method by the U.S. Department of Education. You state income tax refund can also be taken.
• Paycheck garnished – They can take 15% of your disposable income.
• Suit – Government and private lenders can sue you.
• Federal Aid – If you want to return to school, you can’t qualify for Federal Aid until you pay student loans satisfactorily.  This may take a full year of on-time payments.
• FHA or VA loans – You are not eligible for federal loans such as FHA or VA loans until your loan is paid.
• Statute of limitations – there is no statute of limitations on the age of the student loan debt regarding repayment.
• Social Security – The Department of Education can take Social Security retirement benefits and Social Security disability benefits.  They can’t take more that 15% of your total benefit or more than $750 per month.

There seems to be a lot of confusion about the who, what, where, and whys of judgments.

What is a Judgment?

A judgment is basically a decision by the court resolving a dispute between two parties. If you have a judgment on your credit reports, more than likely it resulted from one of your creditors suing you, and the court issuing a judgment against you for the amount owed.

How long will a judgment stay on my credit reports?

The Fair Credit Reporting Act (FCRA) allows for the reporting of judgments for 7 years unless a state law provides a longer time period. (15 USC 1681c)

What do I do if I receive a summons?

1. DO NOT ignore the summons!
2. If possible, contact a local attorney.
3. If you are not able to hire an attorney contact your local Legal Aid Society
4. Or you can contact the court clerk (whose contact information is on the summons you received) and they will help you file an answer to the complaint.
5. Contact the creditor or attorney and try and resolve the complaint.
6. Compile all documents or evidence supporting your case.

What happens it I ignore the summons?

If you ignore the summons you run the risk getting a default judgment against you. A default judgment basically means the judge rules in favor of the creditor because you did not show up. This is important because if you do not really owe the debt or if it is incorrect, you could still be liable.

What does a judgment obligate me to do?
A judgment is the Courts decision obligating you to pay the debt. A judgment can be executed by local law enforcement or a writ of garnishment can be obtained allowing your wages to be garnished.