Student loan debt has been financially crippling countless adults in the Beehive State. As its pile ballooned in the last decade, the number of people over the age of 60 with it also increased more than 100% between 2007 and 2017, according to Equifax.
It is no secret that college debt has made it harder to qualify for home loans in Utah County. It makes more challenging to save enough money for a down payment and keeps one’s debt-to-income ratio above the threshold.
Despite this reality, did you know that a student loan can be a useful tool for getting your mortgage approved? Yes, it is a matter of looking at your situation like a glass half full. Below are the ways it can strengthen your bid for a home loan.
Positive Payment History
Nothing increases FICO scores than a punctual payment. It is the most influential factor in your creditworthiness, showing creditors how responsible you are in fulfilling your financial obligations. Considering that almost every lender in the mortgage world uses FICO, using your student loan to add a positive payment history to your credit reports matters a lot.
If you are struggling to keep up with your monthly payments, it is imperative to refinance your loan and get more manageable installments. A refinance will ding your credit slightly because it will trigger a credit inquiry, but the gains of not missing the due date made possible by more affordable payments outweigh and outlive the negatives of resetting the clock of your student loan.
Unaffected Credit Utilization
Credit usage is the second-most important component of FICO scoring models. It accounts for 30% of your credit scores. However, the balance of your student loan does not deepen your level of debt in this respect.
Only revolving credit impacts your credit utilization rate. In other words, moderate credit card usage can keep you from going over the threshold. Many experts say that you should not use more than 30% of your total credit limit and individual credit card limit to avoid increasing your risk as a customer in the eyes of mortgage companies.
High Credit History
The older your student loan account, the more beneficial it is to your credit. A long term increases the average age of your credit accounts, naturally making you look like an experienced manager of your finances.
Paying off your student loan closes your credit account. Nevertheless, it can stay on your credit report for ten years, more or less. If you apply for a mortgage immediately after the maturity of your student loan or nearly before it is repaid in full, the greater your chance of getting approved due to high FICO scores.
Balanced Credit Mix
FICO incentivizes consumers that use more than one type of credit. If you use plastic and pay your student loan at the same time, you can earn extra FICO points.
There are many reasons to hate your student loan, but there are also reasons to like it. Look on the bright side to turn this burden into a benefit as you plan to enter the housing market.