Graduating law school with no credit - how long does it take to build it? Forum

[ellewoods123]

Best advice? in terms of student loans payments, will I be able to build a decent credit score even though I plan to use IBR? Worried how my high debt to income ratio will be viewed.

[RareExports]

It'll be pretty difficult to build excellent credit. You will probably never get above 780 with a high loan balance.

It should not be difficult to build good credit. Do not close existing credit lines, but do not rack up high balances on them either (try to stay under 30% utilization, if you can get even lower, that's better). Try not to open any new credit lines. If you have lots of existing debts, don't consolidate them unless you really need to. Closing accounts will negatively impact your score. Make your payments on time. Unless you have a recent bankruptcy, judgment, or other seriously negative marks, you should be able to get to 720+ within a year or two.

Best of luck!

Source: used to work in the industry

[ellewoods123]

Thanks for the response. I currently do not have any credit cards for obvious reasons. Would you suggest holding off on getting a credit card once I begin working and just focusing on paying down my debt in order to build credit? In terms of getting, for instance, a car loan somewhere down the road, do I run the risk of being denied a car loan or will I be more attractive to lenders if able to show that I utilize a manageable payment plan for my debt?

As you can probably tell, I'm not necessarily worried about making my student loan payments as I'll have sufficient help from my schools LRAP and IBR payment plan. I'm just more so worried about the credit issue.

[RareExports]

Do you have an idea of where your credit score might be currently? It might not be as bad as you think. Having student loans in deferment records them as on-time payments, so that reports as "good" credit. If you don't have any adverse history, your score might be pretty good. CreditKarma is a good, free way to get a rough estimate of where your credit score is.

Do you have any revolving lines of credit? Having one gives your credit score a marginal boost by showing diversity of credit type (i.e. installment vs. revolving vs. mortgage), but that comes more in the form of showing that you are able to pay off different types of loans, meaning the credit boost is down the road. So I do not recommend getting a card if you're concerned with your credit score in the near future (within 18-24 months). If your concern is over your credit score further down the road, getting a credit card, and keeping a low balance on it, is a good idea. I don't necessarily think, though, that getting a credit card and paying down your student loan debt are mutually exclusive; getting a credit card shouldn't really require any extra funds, provided you use it responsibly.

As an aside, make sure you get a good credit card. I recommend getting one from a credit union, as they tend to have more favorable rates. I would avoid Capital One, Discover, etc. at all costs.

tl;dr: It's important to have a credit card for credit purposes, but it will likely adversely affect you in the first 18-24 months, so if you're needing to get an auto loan or something in the near future, I would hold off on getting a credit card. If not, go ahead and get a credit card now, but be aware that you will be hurting your credit in the short run, in order to get a long-run increase.

[ellewoods123]

Thanks. I actually did check my credit score through credit.com a few weeks ago and it did return a score of 700 but that seemed strange to me since I have no other credit at all other than student loans (though I do have my undergrad loans in deferment). Could that be possible?

I would like to have established credit sometime in the next 2 years or so. I am far away from any thoughts of a mortgage or anything substantial like that, but I would like to work toward an auto loan in the near future.

My final question for you, which I've done a lot of research on and can't seem to find a sufficient answer. In terms of debt to income ratio for purposes of lets say an auto loan, if I am able to provide sufficient documentation of my payments on the IBR payment plan to the lender, will I likely be approved? My concern is that I've read a lot about the FHA loans and people with very high debt to income ratios being denied mortgages because the banks will only look at a monthly payment equal to that of a standard repayment plan rather than what a person is actually paying under IBR simply because they are not familiar with IBR and how it works. Doesn't seem to make a whole lot of sense, since clearly under IBR I am only paying a fraction of what I would be under a standard repayment plan and thus my monthly expenses are significantly lower.

[malleus discentium]

As an aside, make sure you get a good credit card. I recommend getting one from a credit union, as they tend to have more favorable rates. I would avoid Capital One, Discover, etc. at all costs.

Just to refine this advice a bit, you should never carry a balance on a credit card. So favorable rates don't matter. Given that, there are a lot of options for good credit cards, but it depends on what you want out of the rewards scheme.

[RareExports]

Lenders typically auto-pull monthly payment amounts from your credit report into their calculations. With that said, if you can provide documentation of the diminished amount you pay, a reasonable lender would probably accept that. Could vary though

ETA: Malleus is right. Carrying a balance is never desirable, but sometimes is unavoidable. Look into what's best for you.