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john ulzheimer is known as one of our nation's most recognized credit experts having worked for 28 years in the credit industry john has become one of the most prolific speakers about credit and the go-to authority on answers to credit-related questions credit countdown with john alzheimer hey there this is john ulzheimer i am a consumer credit expert i've spent almost 30 years of my life in the credit industry it's actually my 30th anniversary this month i spent time at fico which is the company behind the fico credit scoring system and equifax which is one of the three generally recognized credit bureaus in the united states today we're going to talk about student loans credit reports and credit scores specifically do student loans affect your credit scores and how do they affect your credit scores so student loans are almost always going to be reported to the credit reporting agencies in fact the department of education requires the loan servicers that they do business with to report information to the credit bureaus so it's almost like it's not even a choice and the way that student loans are reported is very different than how for example a mortgage loan is reported or a credit card is reported or a home equity line or loan is reported student loans are reported on a disbursement by disbursement basis almost as if they are separate loans so for example if you went to school for four years somewhere and you took out i don't know eight student loans to pay for the various semesters or whatnot even though you owe collectively one large amount of money it's actually reported to the credit reporting agencies for every single disbursement so in the example that i just gave you that would result in eight student loans appearing on your credit reports even though you may only make one payment every single month and then that payment is distributed across your different loans it's still shipped still shows up on your credit reports as eight separate loans and so you're probably wondering whoa wait a minute so that means i have eight accounts on my credit report in that scenario you would have at least eight accounts on your credit report so to the extent that you're paying them on time that's actually really good because one of the challenges that people face um either you know people are new to the country or young people who haven't really entered the credit environment yet they may actually graduate from college with a really well established credit report because of the student loans they've taken out now that you have that now you have to determine um how best to manage them because once they come out of deferment then you're going to have to start making payments on them so if you make payments every single month on your student loans and really they're treated no differently than um paid on time installment loans that are current and in good standing so that's actually really good for your credit scores i mean you want to have good things on your credit reports to the extent that you start missing payments on them that's when student loans can really become a huge problem you know notwithstanding the fact that you don't want derogatory information on your credit reports which is obviously bad um but the way because of student loans reporting on a disbursement by disbursement basis when you miss your payment you actually miss your payment on multiple loans right so if you miss a payment on a credit card it shows up as one late payment on one credit card if you forget to start paying your student loans it's going to show up on late payments across all of them and so the example i gave you a moment ago that would actually show up as being late on eight separate accounts well needless to say that can be very problematic for a credit score because credit scoring systems do consider the prevalence of negative information on your credit reports and so that could mean that you know eight derogatory entries worse than one derogatory entry of course this would need to all be simulated and you can't just make that statement universally and be correct 100 of the time but generally speaking you want to have fewer of those things than you want to have more of those things so that's also one of the issues with respect to student loans so one of the questions that i always get about student loans is well even if i'm paying them on time doesn't the fact that it shows eight of them on my credit report isn't that a problem and i can tell you that from a from an installment loan perspective it's not that big of a deal if you had eight credit cards with balances that's different animal because credit cards are revolving accounts revolving accounts are considered differently than installment accounts installment accounts where you have a fixed payment for a fixed period of time like a student loan that type of debt is less predictive of elevated credit risk and therefore it's going to be less problematic you can actually have a ton of installment debt on your credit reports and still have elite level credit scores so if you think your student loans should show a lot of debt wait to go out and buy a house um you know your house is probably going to be multiple times more than whatever your student loan debt happens to be and as long as you pay it on time then you're still going to be able to earn and maintain really solid credit scores even if you have all those student loans so in the grand scheme of things student loans are not that big of a deal look this is this is not me trying to insinuate that student loan debt can be problematic just from a debt perspective that's a whole other issue i'm just talking about it specifically from a credit reporting and credit scoring perspective not a big deal so if you have any other questions about student loans drop them in the comments section below and i'll do my best to get to them thank you so much for watching have a great rest of your day we'll talk again soon for more videos and credit tips from john ulzheimer go to www.tradelinesupply
Thanks for your comment Ellsworth Verhaag, have a nice day.
- Joe Prazeres, Staff Member
so i get this question a lot from my business clients that are maybe thinking of winding down their llc or closing it or just you know they're starting to rack up some debt and thinking well if this goes south um do all these debts affect my personal credit and the answer is it might it really depends on the type of the debt and the circumstances behind you know why you're closing the entity right so llc's the appeal with an llc is it it is this hybrid editing where it provides you limited liability protection that you might get with a corporate structure but you do have a little more flexibility in operations and certain tax benefits with having an llc right so llcs can be passed serenities they're less formalities under state law so an llc can or cannot have an operating agreement it's recommended it does have one but it doesn't have to do as much kind of admin as a corporate entity would so you don't have to do shareholder meetings you don't have board of directors meetings you don't have um you know to take minutes you have to don't have to do anything like that with an llc for the most part um so so an llc it is a legal person right it's a entity created under state law you've got your own name you've got your own tax id number under it business address llcs can enter into contracts they can buy assets they can sue people and they can be sued right and so that's your first line of dis defense as a member is look this is the entity that's doing all the business if there's something that goes wrong it's on the hook i should be insulated right now with debts though it can be tricky if you as the owner have the personal guarantee on the debt so what what an example of that would look like if you look at a company's balance sheet they might have accounts payable right so you have vendors that you owe money to maybe you went down to your bank and you got a business line of credit open um maybe this you got sued and so now you got to book an accrual for a lawsuit um that that the llc has to pay to um you know another another party and then maybe you've got some credit card debt for the llc your personal credit could be impacted if you had to sign a personal guarantee to get that liability open right so the most common example where i see this is a closely held business structure so it's an llc that's got one owner two owners three maybe it's not a big publicly traded company okay so it's a small company and you decide you want to go to your bank and you open a line of credit or you open a credit card and during the application process it is opened under the llc name and tax id number but the bank requires a personal guarantee from one or more of the owners and this is incredibly commonplace i don't see any instances now where a closely held company can even open a credit card for their llc unless the owner provides a personal guarantee and the banks do that for obvious reasons right they want to make sure that you don't just rack up a hundred thousand dollars worth of credit card debt and then just cut and run and nobody's on the hook for it so they're going to ask you you know for your personal information um to identify who you are so you give them your name social security your social security number but then in that contract it's it's going to say that look this is the llc debt but if you don't pay um we're coming after you personally and if you sign a contract saying that they're allowed to do that so um yeah very important to be mindful of what kind of debt you have in the llc it's certainly going to impact um you know the creditors creditor's recoverability when it comes to you personally um so yeah read the fine print read the fine print on those credit card agreements on the line of credit you might get from the bank um very very important okay thanks
Thanks Steve your participation is very much appreciated
- Joe Prazeres
About the author
I've studied microwave astronomy at Keystone College in La Plume and I am an expert in english literature. I usually feel melancholy. My previous job was city planning aide I held this position for 17 years, I love talking about cue sports and pickle ball. Huge fan of Jacob Sartorius I practice tai chi and collect automobilia.
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