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Why FAFSA Denied Me Over $9

I'm sad to say I was immediately rejected when I applied for a student loan through FAFSA a few months ago. The reason: I had a credit card bill that was beyond 180 days late. And just what was my unpaid balance? A skimpy $9...ugh! Unfortunately, I had completely forgotten about a small purchase I made on eBay several months prior. I had racked up interest in the amount of $4 and some change, a bunch of negative marks on my credit reports, and then I was forced to deal with the whole hassle of getting denied for a graduate school loan I really needed. All of that pain for 9 bucks.

After hastily paying off the overdue balance and submitting all the required paperwork to FAFSA, I was luckily approved for the loan prior to the start of the winter quarter. To my benefit, it all worked out in the end. Some are not so lucky. I'm certainly not the only one who has gone through this type of experience.  It can happen to anyone, especially busy students who are new to credit, so here are a few tips to make sure you avoid a credit blunder like I did when applying for your next loan:

1. Prepare early. As the saying goes, "an ounce of prevention is worth a pound of cure." So goes your credit. Do everything you can to prepare for your loan as early as possible. Take a microscopic look at your finances well in advance, pull your credit reports, and review all three of your FICO scores so you know exactly where you stand. You don't want to get blindsided by a problem after your loan application has already been submitted.

2. Keep track of your credit cards. This is obvious, but many credit card users fail to do it properly. It's become more popular to apply for new credit cards every year in order to take advantage of lucrative sign-up bonuses. When you do this, it obviously becomes easier to lose track of one card and miss a payment. Worse still, if a card gets stolen and you are unaware, someone else could be having a fabulous time on your tab while destroying your credit. Devise a way to keep a watchful eye over all your credit cards. You might only need an Excel spreadsheet, or perhaps you prefer to use an online service to keep track of your cards. It doesn't really matter. Just choose something that works for you, and then stick with it.

3. Set up autopay for monthly payments. I could have easily avoided all the hassle I experienced if auto payments were set up on my card. While keeping close tabs on your credit card accounts is important, you also want to make sure that monthly bills are always paid on time and in full. Setup autopay and you'll never be late on a payment. The moral of the story: don't let rejection happen to you because of a simple mistake! Review your credit profile often, monitor your credit cards closely, and utilize auto payments so you can avoid common credit blunders. Then, when it's time to obtain your next loan, your credit score will be prepared to help you get the approval you need at the very best terms and rates.

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Logan Abbott's picture

Logan Abbott is a personal finance and credit card expert with over 5 years of experience writing about each topic. He is a graduate of the USC Marshall School of Business, and also contributes to other online finance publications. He has been quoted in the New York Times, San Diego Union Tribune, TheStreet, and more.

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