Background Checks and Poor Credit History

[CZDreaMD]

Hi everyone! I will be applying to med school next year and I am concerned that my bad credit history will affect my chances of an acceptance. (Really high school loans, credit card debt, etc). Does anyone know if adcoms run a background check on their applicants and whether that can be detrimental? Thanks!

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[student1799]

Most adcoms only run a CRIMINAL background check on you. (I was admitted this year, so I've already been through it.)

I don't think any med school would deny you admission because of a poor credit history. However, bad credit could well impact your ability to get student loans (not the Stafford loans, but private ones, which many students have to use on top of the Staffords). Therefore, it's important that you clean up your credit as much as possible before matriculating.

 

[DrMidlife]

Agree w/student1799. Keep your nose clean.

Also, having a credit history doesn't mean having a bad credit history. Late payments and defaults make a bad history. Debt doesn't.

Best of luck to you.

 

[njbmd]

Hi everyone! I will be applying to med school next year and I am concerned that my bad credit history will affect my chances of an acceptance. (Really high school loans, credit card debt, etc). Does anyone know if adcoms run a background check on their applicants and whether that can be detrimental? Thanks!

All schools run a criminal background check. The more expensive schools, like Georgetown, will require that your credit history be good. Since your educational debt for many of the private schools will exceed the money that you can borrow from federal sources (getting worse every year), you will have to cover your costs from private lenders. Yes, your credit history can be a detriment to admission especially if you have high credit card debt. The school loans aren't as problematic.

 

[nontrdgsbuiucmd]

Legally, no one can run your credit without your express permission. No school I applied to (many)requested this permission. I recall seeing something, it may have been on Georgetown's web site, stating you need pretty good credit to go to that one school, but as mentined above this is likely due to total cost being far above what stafford subsidized/unsubsidized will pay.

Stafford subsidized and unsubsidized combined do not require any type of credit, other than not being in default on other student loans (& I think no drug convictions). I forget the limit, I think these go up to 42K per year or so for med students. Grad+ loans are a different type -- these cover costs of education/living above stafford loan limits, up to the cost of attendance stipulated by the school, and DO require OK credit. For my cheap state school, my award letter stated I'd need to borrow 1,200 or so for M1 for grad+ loans; the rest is covered by stafford (subsidized + unsubsidized) + small grant + small school-specific low interest loan.

This is why the total school cost is such a big deal -- I'd think anyone could earn $1,200 per year if they didn't qualify for grad+ loans due to poor credit; but private schools cost 15K more or so than most state schools; you'd need to have pretty OK credit to attend a private school, or go military, or get lots of grants!

 

[Lacheln]

Agree w/student1799. Keep your nose clean.

Also, having a credit history doesn't mean having a bad credit history. Late payments and defaults make a bad history. Debt doesn't.

Best of luck to you.

Eh? Having ever had debt, no, but debt to credit ratio absolutely affects your score, especially in the case of significant consumer debt. I can't speak to the private student loan market on this, but in the current mortgage arena it can crush you, so I would be surprised if the unsecured private student loan market was better. What's your rationale?

But yeah, OP everyone's right when it comes to the fact that the vast majority of admissions offices don't care, but many people have to get at a credit based grad plus loan to cover expenses above the federal caps.

ETA: Student loan debt doesn't seem to affect your score much, but it does factor into the lifetime caps on federal student loans. (~$224k right now if I'm not mistaken?)

 

[DrMidlife]

What's your rationale?

"Bad credit" is what you have after a bankruptcy or foreclosure or history of late payments etc. Bad credit is something you might need a decade to repair, even if you win the lottery and pay everything off.

A bad credit rating is a low number from a service like Experian (ie free credit report dot com, tell your dog tell your friends tell your mom). These agencies have no idea what your income is. You can have a perfect credit rating with an insanely high debt-to-income ratio. Debt-to-credit is only in play with consumer debt, not student loans.

Ratios et al are going to affect the availability and terms of any loan you want, sure, but this is completely subjective within a given market. You're not getting an FHA mortgage with 38% debt-to-income and/or maxed credit cards, end of story, whether part of that debt is student loans or not. But a med student with crushing student loans, and even with credit card debt, can still get more private student loans, certainly up to COA, as long as there are lenders who want in on that action - and it's some sweet action for the investor. None of the proposed changes in student lending laws are going anywhere near the unguaranteed private loans.

Not that I'm saying "everything is fine." Debt loads are completely out of control and it smells like the subprime crisis, quite frankly.

 

[BennieBlanco]

Eh? Having ever had debt, no, but debt to credit ratio absolutely affects your score, especially in the case of significant consumer debt. I can't speak to the private student loan market on this, but in the current mortgage arena it can crush you, so I would be surprised if the unsecured private student loan market was better. What's your rationale?

But yeah, OP everyone's right when it comes to the fact that the vast majority of admissions offices don't care, but many people have to get at a credit based grad plus loan to cover expenses above the federal caps.

ETA: Student loan debt doesn't seem to affect your score much, but it does factor into the lifetime caps on federal student loans. (~$224k right now if I'm not mistaken?)

I worked for a big US bank and in financials before becoming pre-med. This poster is right (I could look at as many as 200 different people's credit reports in a month when we were busy). Debt ratios do affect your credit, not minor but also not major like late payments. It could certainly drag a person around 650-680 even with excellent payment history. Top FICO earners usually have 3 lines of credit and do not exceed 30% on their available credit limits.

In other words when people are talking about using up % of limits, they are referring to revolving debt (as opposed to an installment loan which would be a 1st mortgage, non-HELOC, or a student loan. Basically a big loan that pays down with a monthly payment). Your revolving debt % use is definitely a factor. most instituions judging credit though will consider 700+ good but as the credit crisis tightened 740+ became the new tier for "excellent credit".

Get your scores from experian, equifax, and transunion ASAP and see what is up on there. If you need any quick advice (as I am NOT a credit counselor, but I know enough to give excellent advice on what to do and NOT to do) let me know.

Oftentimes you can make repairs on credit issues within 12 months surprisingly, yet major problems like foreclosures or repo's are tougher and will not repair just as easily as collections (same with judgements, which will not repair as easily).

 

[Lacheln]

Dr. Midlife, thanks for your answer, I missed it until Bennie bumped the thread. I think your definition of "bad" credit is a bit of semantics, since a fix predicated on winning the lottery isn't exactly better than one based on waiting for time to pass (especially if your interest rates are so high that you aren't making much progress on the balances while that time is passing). The OP mentioned credit card debt, which is why I brought up consumer credit ratios. Although the FICO algorithm is far too opaque for anyone but them to say what impact any one factor will have (remind you of anything?) I do know that your consumer credit debt to credit ratio has a noticeable impact on your credit rating.

One example is a friend of mine who wanted to refinance his rental property. Unfortunately his credit rating dropped from ~760 to ~680 in one month after one his credit cards with a $0 balance and a high limit was closed without notice or much in the way of explanation. That closure doubled his consumer credit to debt ratio overnight. He had put some large purchases for his primary home on a different credit card in order to get the airline miles from the card, and was not concerned about it at the time because the card is very low interest, and within his means to pay off. He has enough cash in the bank to outright pay off the bill, but would lose interest points in doing so - more than he would gain in refinancing given his new subpar score.

The second example is a friend who is going to med school this coming year - he has some significant credit card debt and was planning on getting an uncertified private student loan to pay them off before starting school. It would have to be uncertified because the cost of the credit cards goes beyond the COA regardless of scrimping. He had a cosigner lined up, but was denied even the opportunity to provide the cosigner. I don't know his exact score, but the only black mark on his records is the credit to debt ratio. I think what he's going to end up doing is take a loan from one of his 401ks to get the balance lower and try again. The people at the bank stressed that it's very difficult to get a loan right now though, so who knows if it'll work. I do realize we're talking about an uncertified loan here, which may be a very different animal in the sense that it isn't federally backed - but if you're in the position of needing to transfer existing debt to student loans in order to defer payments while in school, well, chances are you won't be able to, even if you'd be willing to eat the added interest to do so. This person is also considering bankruptcy...and although that would have horrified me before, I actually am coming to see his point that it might make sense in his specific situation.

I guess my point just boils down to the fact that credit is insanely tight right now, even in markets that traditionally were pretty stable.

Bennie, thanks for chiming in with your background. I'm curious if you have any comments on the two situations I mentioned?