Pay off student loans?

Anonymous · ‎05-30-2015

So I am trying to figure out the best course of action to boost my Fico score. Currently at 687 (was 719 at the beginning of the year) according to Discover. I am generally very careful to pay all bills on time and have never been over 15% credit usage at any given time. My current accounts are

Discover @ $6000 - little over a year old - always paid in full every month
Amex @ $6500 - brand new account - will always be paid in full every month
Naviant Student loan @ $3500 oppend in 2009 started at $8500 currently at 9% interest rate.
I had about 4 other student loans totaling about $9000 all paid in full and closed, although one had a derogitory mark of a late payment (60 days)
Capitol One Sony Rewards card closed (had a $6000 limit and was only open for about 4 months before I closed it) <- probably not a good idea

I have about 3-4 credit pulls in the last 6 months (depending on which reporting agency you look at) for a Rental application pull, NFCU Bank account (which I did not realize they would do for just a checking account) pull and two credit card pulls. Two of those pulls should fall off my report pretty soon though (rent was 6 months ago and the Sony card pull was in late 2014)

I guess what I am trying to figure out is the best way to boost my credit in the short term if possible. I would like to get a $150k builders loan in mid 2016 for a new home construction and see the lowish fico score as a possible issue.

Would it be worth paying off my last student loan right away? Or should I drag out payments for a while, since it is my oldest credit account. Also would it be worth having more credit cards? Is only two credit cards going to be counted against me? Are there any other general tips for improving my score?

How will reporting agencies view the fact that my wife has a $4500 car loan? Would it be worth paying that off? My wife is also very careful with her credit, paying her cards off every month, with no derogitory marks.

Anonymous · ‎05-30-2015

When was your Capital One Sony Rewards card opened? I realize it is now closed, but when was it opened?

Also, when did your 60-day late payment occur? Was that the only derogatory event that has happened anywhere on your file?

Final question: you ask about your wife's car loan and its impact on your score. Is her car loan in her name only? Does it appear on your reports?

Anonymous · ‎05-30-2015

I oppend the sony card back in December of 2014. The 60 day late payment was back in 2010. My Wife's car loan is in her name only.

Anonymous · ‎05-30-2015

OK. Here are the things that are creating problems for you.

You have a derogatory mark. Payment History is the hugest chunk of your score, so late payments can have a big impact. The good news is that it was a while ago.
You have been using credit cards for a very short time. Your oldest CC (the Discover) was still only opened a very short while ago.

The best things to help you in the extremely short time frame you specified (next 12 months, with a hope for a major loan application at that time):

Do everything you can to generate no new inquiries. If you can do that, then all your current inquiries will stop affecting your score (FICO only considers those made in the last 12 months). Inquries do not themselves constitute a major part of one's score, but it is a subcategory you can improve very rapidly.
Do not open ANY new credit cards. This includes cards that are pre-approved. Every new card that you add will be very bad in the short term. It would not be a problem if you knew you were going to make no important loan applications in the new few years, but your situation is the opposite.
Do not pay off your student loan. Continue to make payments on it. Feel free to explore with your lender whether you can pay the principal down further -- that might get you some extra points. But paying it off will harm your score, since it is your only open installment loan. Make sure that you keep it open/active for the next few years.
Continue to pay in full (PIF) your current credit cards each month.
When you get to a place where you'd like to see what you score is, pay off one card altogether (reporting a 0 balance) and keep the other card at < 9% of that card's credit limit. You do not need to do that every month, just on a month where you are trying to determine what you score currently could be.

I am frankly skeptical that you will be able to get to a place in 12 months where a major loan of the sort you describe would be feasible. Even if approved, the hit you will take in additional interest (over waiting a few more years) would make that loan a dubious proposition. That's just my guess, however. If you subscribe to a good credit monitoring service (e.g. myFICO) you can watch your scores and see how they improve.

If you could wait 2 years, then your derogatory info would fall off and your CC age would be higher. That's the main thing you need and time is the best way to fix it.

Final thought: explore whether there is a person directly linked by blood or marriage (parent, wife) who has a CC with a very long history (and no lates!). If so, see if that person can add you as an authorized user.

Anonymous · ‎05-30-2015

Thanks for the info, I will probably let the accounts mature and hopefully the derogitory mark will fall off soon. What kind of score should I have before I start looking at home loans? I have a decent job and will have about a 20% downpayment.

My wifes credit cards are only a couple years old as well, so not much there I can do as far as family goes.

Anonymous · ‎05-30-2015

Nice to hear that you will have a 20% down payment and that you have a solid job. (I guessed you were doing pretty good with your salary.)

My advice is to meet with a few different lenders. Explain the loan you might have in mind, give them your salary, etc. Then explain that you'd like to know what credit scores would qualify you for the best rates at their bank, assuming that your other stuff looked good (job, income, debt, etc.). They will push you to give them your social sec # so that they can pull your credit, which would ordinarily not be a bad idea, but in your case you are trying to watch every single tiny ding, so you don't want more inquiries. They should be able to look into it and tell you off the record what scores their particular bank looks for -- and do so without pulling your score. Do that with four different banks or credit unions and you should get a good idea.

If your mom or dad has a very old CC, it still might be worth exploring the AU idea. Even if you are 30 or 40 years old, as long as the relation is parent to child you can still a big benefit from it.

Anonymous · ‎05-30-2015

I will look into getting added onto my folks credit card, i doubt that will work out though. They have excelent credit and its because they are very cautious about this kind of thing. Suggesting that I be added to one of their oldest lines of credit will throw up all kinds of red flags, especially since they are about to sell their home and buy/build another.

I have already started investigating local banks for the builders loan to try and see what they want, still waiting to hear back though on that side of things. So will see what happens. I was just trying to get a feel for how much they would look into my credit rating vs my income/downpayment and job situation.

Also why does your credit rating not take into account your income? it seems like the two should be very heavily associated with each other.

Anonymous · ‎05-30-2015

Regarding the AU with your folks. They have every right to be very cautious and protective of their credit, and they are right not to put themselves at risk just because it's their son. But, in this case, I think they can do it without any risk to themselves. I am pretty sure that the following is true. Suppose your dad has (just to make up a card) an open Chase Visa account that was started 20 years ago. You give him all your info, including your social and anything else he would need to add you. He contacts Chase and adds you as an Authorized User (AU). He explains to Chase that he wants your card mailed to him and not you and that he wants to continue to be the only person with access to his account (i.e. you can't call Chase and get access). Then, when the card is mailed to him, he puts it in a shoebox in his house. You never get the card, you are never told the account number or the expiration date or the code on the back. All that happens is that an account appears on your credit report that has 20 years of credit history on it! Great for you, and safe for your dad.

I have never been involved myself with the whole AU thing, so feel free to start a separate thread at myFICO to ask people if what I suggested is true. I think it is but I don't know -- lots of people here are far more experienced with it than I am. The goal is to find a strategy that makes your dad or mom feel safe and that gives you the benefit of a new very old tradeline.

Or you can just decide that you want to do it all yourself and not go the AU route at all, which is also fine.

Regarding your question at the end:

Also why does your credit rating not take into account your income? it seems like the two should be very heavily associated with each other.

Depends on what you mean by credit rating. If you mean, " a lender's rating of your ability to handle a loan of a certain size" -- then that lender certainly does factor your income into their rating of you. (They look at your income, your job stability, your FICO score, and a number of other things.) But if you mean, why doesn't the FICO score consider my income, there's a number of reasons. I suggest you google that question if you are interested in learning all the reasons.. The crucial thing for you to know, however, is that neither FICO not any of its competitors consider your income, your assets, how stable your job is, or anything like that. Lenders are interested in that, but they add those factors TO what they see in the FICO score and make their decision based off all the info (your FICO score being one thing).

Anonymous · ‎05-31-2015

What do you guys think of oppening a CD and then borrowing against it? is that a lagitamate way to get a larger variaty of credit? Not sure if they would do a pull on my credit to set something like that up or if it would decrease the overall age of my credit as well.

Revelate · ‎05-31-2015

@Anonymous wrote:
What do you guys think of oppening a CD and then borrowing against it? is that a lagitamate way to get a larger variaty of credit? Not sure if they would do a pull on my credit to set something like that up or if it would decrease the overall age of my credit as well.

Don't really think SL / installment loans are counted differently. I'd drag out my SL before I did that if possible.

I think it's a great way if you're trying to refinance credit card debt, or potentially any other spread debt, but CD interest rates suck hardcore and I'd prioritize finances over that instead as it just doesn't need to be a large deposit / loan to accomplish the credit score prettiness.

Really for pure FICO purposes a $500 savings + secured loan against that appears to get the bulk of the score card though we need more data for real optimization metrics but shoudn't be necessarily with SL/auto/etc loans as we currently understand it.