Student Credit Card and Credit Education Blog

I just reviewed our traffic statistics for Student Platinum, its been a good month for us but I was surprised to see that our second most popular page is one that’s not even directly linked to from the site. The page is a resource page for high school students and first year college students. It summarizes the important facts about credit score, credit reports and student credit cards. It also provides a short list of credit cards which are doing a good job approving students with little or no credit history.

If you wish to check it out, here for the first time is the link to the page everybody’s been talking about: The amazing student credit page.

On February 13th I added a blog entry titled How My Credit Score Dropped 30 Points in One Day. This entry is a follow-up to that. To summarize the original entry, I paid off and closed my Chase credit card because they were jerking me around by raising my APR because I was paying my balance off too quickly after a 0% interest balance transfer. Aside from that being a highly unethical and downright evil way to treat me, I then screwed up in trying to sever my ties with them and they socked it to me- again.

I paid off my balance plus some extra to cover the interest that I calculated had already compounded for the current month. I then proceeded to pay no attention to the invoice the next month since the account was closed and I assumed they were just going to bug me about a credit of a few dollars. Little did I know, the interest they hit me with was $3 more than I paid with left the account open. Instead of a credit I owed them $2 which I didn’t know about and so didn’t make a payment. Chase was thrilled to charge me a $30 late fee, and then another giving me a balance of $63 which was over 30 days past due. This they submitted to the credit agencies who then rocked my credit score by an average of 30+ points. luckily I use a service that alerts me when somebody dings my credit report so I was made aware of this balance for the first time. I immediately paid the balance off and then called Chase hoping for a goodwill adjustmen. I was fine with surrendering the $60 to cover being late on the $3 but I wanted them to retract the negative mark seeing as it was obviously an mistake. Their answer to me can be summed up by: “too bad, don’t try to rob us of $3 next time”. No, they didn’t want to work with me on that.

Well I’m happy to report that my score corrected itself and went back up today to just a few points less than where it had been a originally. So if you are wondering how a late payment will hurt you it all depends upon how late and how many you have. I researched how this works and here is the deal:

One late payment hurts your credit score in a major way because you could potentially go 90 days late. 90 days late is what lenders really fear because after 90 days their odds of not getting paid without going to collections skyrocket. Once its reported that the late payment was made and you are back on track in under 90 days the penalty eases up on you to show lenders you are no longer a 90-day late risk. If you have a history of being 30-days late this doesn’t work out so well, the penalty can stick for repeat offenders.

Anyway, so I’m back on track and now I can look into taking advantage of the dropping interest rates to try and refinance my mortgage and save some money each month. I was about to do that when my credit score got socked by Chase. With the economy bogging down, credit requirements are getting tighter so that’s why my score dropping was such a killer.

By the way if you are a student who will be looking at private or consolidation loans in the next 12 months, don’t wait! You should apply now before the credit requirements raise higher! You can go here to learn more about how the credit crunch is going to affect your student loans.

I’ve been warning students about the credit crunch on the horizon for a couple of months now in this blog. Now the crunch is really here and it’s going to impact you in a very personal way…in your ability to pay for college. So forget about the past posts if you want and let’s get to the point they made:

1. Credit score requirements are going to rise this year for loan borrowers and for cosigners
2. Student credit scores are likely to drop due to credit changes in FICO 08

Now to add abuse to insult and injury, experts are predicting the available funds for students are going to dry up this year as well. According to a recent article in the Wall Street Journal, 2008 is looking like the bleakest year since your parents went to college for students looking for loans to fund their educations. What’s worse is that students don’t realize it yet because the money they have now was were awarded last year. It’s not expected to be nearly so easy to get money for college in the fall.

The article quotes Mark Valenti, president of the Connecticut Student Loan Foundation, a nonprofit lender based in Rock Hill, Conn with saying “There is no question in my mind that, unless something changes in the marketplace, there will be a shortfall of funds available to make student loans, I’ve been doing this since 1978, and I’ve never been more nervous.”

What can you do about it? One thing you should do immediately is to look into applying for your 2008-2009 student loans right now before the funds dry up! Aside from this it’s important that you protect your credit score and work to make sure you have the best chance at being approved for college loans.

I would also mention that free college scholarships are still out there. They just awarded a $10,000 free college scholarship at www.scholarshippoints.com and give away another $1,000 every month!

Here is the original Wall Street Journal article; sorry for the re-post but it’s extremely important and I wanted to make sure you had access to the article even after it gets taken down.
Lenders Predict Harsher Climate for Student Loans
By ROBERT TOMSHO and JOHN HECHINGER
February 14, 2008

Amid a widespread tightening of credit, some student lenders predict college loans will be harder and more expensive to come by for the fall.

Without a break in the credit crunch — such as stepped-up lending by major banks — the situation could become far worse, these lenders say, leading to many students being unable to fund their educations.
“There is no question in my mind that, unless something changes in the marketplace, there will be a shortfall of funds available to make student loans,” says Mark Valenti, president of the Connecticut Student Loan Foundation, a nonprofit lender based in Rock Hill, Conn. “I’ve been doing this since 1978, and I’ve never been more nervous.”
The subprime-mortgage crisis has driven investors away from the asset-backed securities that are a crucial source of capital for many student lenders, prompting smaller concerns like College Loan Corp. and Nelnet Inc. to stop making certain kinds of loans. And in recent days, the market for auction-rate securities, a type of financing vehicle tied to student loans, has seized up.

Concerns were heightened Tuesday when the Michigan Higher Education Student Loan Authority, a state agency, said it would suspend a major student-loan program because it was unable to raise capital in the markets. “I think a lot of agencies like ours are going to be running out of money,” says Tom Saxton, a deputy treasurer for the state of Michigan. “It just hasn’t hit yet.”

Indeed, college financial directors say they aren’t yet seeing major problems with loan availability. One reason is that most students secured their loans for the current academic year before it began and won’t begin borrowing again for the next one until late spring. “It’s still early right now,” says Doug McNutt, the University of Akron’s financial-aid director.
Some observers are convinced that if lenders dependent on asset-backed securities leave the market, big banks with other sources of capital will step in and fill the void, especially for loans guaranteed by the federal government, which accounted for more than three-quarters of the $77 billion that students borrowed for the 2006-07 academic year. “This is a very good business,” says Sandy Baum, a policy analyst for the College Board, “and such a low-risk thing.”

SLM Corp., the biggest student-loan company, is poised to secure a new $31 billion line of credit. Spokesman Tom Joyce says there’s “no chance” current credit market conditions will damage its ability to make loans this year.

Even so, the company commonly known as Sallie Mae, struggling after years of stellar growth, has said it will tighten credit requirements for borrowers and emphasize making higher-interest private loans over those that are federally backed. Sallie Mae currently charges interest rates ranging from 5.5% to 13% on private loans, depending on borrowers’ credit standing.

Mr. Joyce adds that because Congress last year slashed the subsidies made to lenders of federal loans, Sallie Mae and others will have to scale back benefits they had previously offered to students, such as breaks on fees and discounts for on-time payments. “Unfortunately, there will be higher prices in the marketplace,” he says.

The subsidy cuts, Sallie Mae’s problems and the subprime-lending fallout have created “a perfect storm for the student lending industry,” says Terry Hartle, vice president for government affairs at the American Council on Education, a college association in Washington. Mr. Hartle says he’s “concerned but not scared” about loan availability because the number of lenders has grown so much in recent years that “you could lose some without there being a shortage of capital.”

Mark Kantrowitz, who operates FinAid.org, a Web site focused on college finance, says students will have fewer lender choices this fall, while the interest rates for private loans are likely to rise by one percentage point, with related fees rising by an equal amount. For the moment, he doesn’t envision a loan shortage, “but there is also the possibility that there may be more turmoil,” he adds.

Industry observers say they don’t know of any other state authorities poised to immediately suspend loan programs, but uncertainty in the credit markets has many nonprofit lenders weighing their options.

Brazos Higher Education Service Corp., which has a $15 billion student-loan portfolio, was one of the lenders whose auctions failed this week. Company executives have been working on related problems since the fall, when the market for auction-rate securities first ran into trouble, says Ellis Tredway, executive vice president. Nothing is clear yet, he says, adding that with the summer borrowing boom coming up, lenders like Brazos, based in Waco, Texas, are anxious.
“It is not hard to look down the road and ask whether there may be a funding crisis for student loans this fall,” he says.
The Vermont Student Assistance Corp., a nonprofit public agency that originates and guarantees student loans, says it has funds to keep making loans for the next few months but needs to raise $200 million in June and July for the next school year. In the meantime, a failed auction this week means it will have to pay higher interest rates on $300 million in bonds it has already used for student loans.

Don Vickers, the agency’s president and chief executive, says if the credit crisis isn’t resolved by summer, agencies like his may not be able to afford to keep funding students’ college tuitions. “If it’s not resolved by then,” he says, “it’s going to be catastrophic.”

With students poised to begin receiving financial-aid award letters in the next month or so, FinAid’s Mr. Kantrowitz advises that students should, as always, carefully focus on how much of the offer is in grants that don’t have to be repaid and how much is in loans that do.

Students should pursue as much federal and state loan money as possible before considering private loans, which tend to have higher and variable interest rates. If other state authorities discontinue loan programs, private loans may be the only option, but students can lower the interest rates they are charged by having a parent cosign.

Martha Holler, a Sallie Mae official, recommends that students get in touch with financial-aid offices quickly to work out their loan plans. Students tend to get financial-aid award letters in the next month or so but many wait until the summer to decide on loans. Ms. Holler says that students needing private loans should act promptly since credit standards are tightening. “Apply now instead of waiting,” she says.