BUSFIN 3120 Student Loans & Credit Cards

Equifax

Specializes in consumer credit data and identity verification; operates globally; provides credit reports, scores, and identity theft protection; known for a large data breach

Experian

Focuses on global credit analytics and fraud protection; provides credit reports, decision analytics, and marketing data

TransUnion

Provides comprehensive credit reports and fraud protection tools; provides credit information as well as analytic services

FICO

Developed the widely used FICO score; scores are based on data from Equifax, Experian, and TransUnion

VantageScore

A credit scoring model developed by the three major credit bureaus: Equifax, Experian, and TransUnion. It aims to provide lenders with a more consistent assessment of a consumer's creditworthiness.

FICO Score

Your score is calculated based on five main factors, each weighted to reflect its importance in predicting creditworthiness

Payment History (FICO Score)

35% - If you pay on time

Amounts Owed (FICO Score)

30% - Total debt across all accounts

Length of Credit History (FICO Score)

15%

Credit Mix (FICO Score)

10% - Set of accounts/having a diverse set of accounts is good for your credit score

New Credits (FICO Score)

10% - number of recently opened accounts/it’s good to space out new credit cards

FICO emphasizes…

long-term debt/habits; used more often

Vantage emphasizes…

short-term credit habits and recent activity, focusing on payment history and utilization.

Practical tips to Build Credit

include paying bills on time, keeping credit utilization low, start with a secured credit card/credit-builder loan, avoid opening too many accounts at once, monitor your credit regularly

Minimum Payment

the smallest amount a borrower can pay on a credit card bill to keep the account in good standing without incurring late fees or penalties

Balance-Transfer Payments

payments made to move outstanding debt from one credit card to another, often to take advantage of lower interest rates.

Debt Management Plans/Installment Payments

structured repayment plans that help borrowers manage their debt by making regular, fixed payments over a set period.

Snowball Method

a debt repayment strategy where borrowers pay off their smallest debts first to gain momentum and motivation, then progressively tackle larger debts.

Avalanche Method

a debt repayment strategy where the borrower pays off debts with the highest interest rates first, minimizing total interest paid.

When the federal reserve increases interest rates,

it has an immediate effect on your credit card balances by increasing the amount you pay on your credit cards.

Direct Subsidized Loans (Need-based)

student loans with subsidized interest (fixed for the life of the loan); if you are enrolled at least half-time, the government pays the interest; 6-month grace period post-graduation before you start paying; your loan limit is based on your financial need

Subsidized

Financial need/interest covered by government

Unsubsidized

no financial need/interest accrues; loan limits are higher for unsubsidized

Direct Plus Loans

Federal loans available to parents, independent undergraduate, and graduate students; they may check your credit; interest is accrued during school

Standard Repayment Plan

Fixed payments for student loans over 10 years

Income driven Repayment

Payments based on incomeand family size, adjusting annually.

Deduction Amount (federal student loan tax treatment)

Can deduct up to $2500

Qualifying Loans (federal student loan tax treatment)

Loan must be taken out solely for educational purposes

Income limitations (federal student loan tax treatment)

If you are a single filer and have an income between $75k and $90k; the deduction is phased out; married is $155k to $185k (for married filing jointly)

Filing Status (federal student loan tax treatment)

The deduction is not available if you’re married and filing separately

Other requirements for federal student loan tax treatment

can’t be dependent on someone else’s tax return; loan has to be in your name

Tax benefits (federal student loan tax treatment)

if you meet all requirements, your taxes will be lowered

Should you repay credit cards or student loan debt first?

Credit Cards first!

Interest Rates (credit cards vs. student loans)

Credit cards have higher interest rates

Tax-deductible (credit cards vs. student loans)

Credit cards are not tax deductible

Credit score (credit cards vs. student loans)

credit cards will directly affect your credit utilization; student loans will not

Risk (credit cards vs. student loans)

Credit cards are riskier; student loan programs offer protection

Financial Flexibility (credit cards vs. student loans)

by paying off higher interest credit cards, you will have more money to put towards student loans; student loans are considered GOOD DEBT