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Student loans, Average Age, and optimal credit

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Raccoon290
Established Member

Student loans, Average Age, and optimal credit

I'm trying to figure out the best course of action for making my credit look the best it could 3 or 4 years from now. 

 

First is the issue of my student loan accounts. Like many of the Federal Stafford Loans, they are serviced by Great Lakes Higher Ed Services after being moved from Sallie Mae accounts first dispursed in 2010.  Currently my loans show as 2 accounts and I was looking into splitting them. (One account would be split into 2 and the other into 3) increasing my total number of accounts.  The additional accounts would increase my AAoA by only one or two months though. 

 

In terms of savings, I'd be paying maybe 20 dollars more per month (not a deal at all given that I'm paying 100+ over my minimum anyhow) and save only a few hundred in total payments.

 

What i'm wondering regarding the benefit is how the lower balanced accounts (also the highest interest ones, fortunately) being paid off will look on my report.  One of the loans, after being split would be about $1500@6.55%, which I can pay off very quickly and have it marked as closed.   In either case my balances would be the same but I would have an extra "Paid in full" account. 

 

Which would look better for a mortage application, which I'd be aiming for in 4 or 5 years?  Would the slight bump in AAoA, one or two lower balanced PIF accounts (but higher total accounts), and such have much of a benefit?

 

 

Second question is along the same vein.  At which point would student loan balances hurt a mortage application?  Should I focus on paying $350-450 per month on loans and saving an extra 10-13k for a downpayment? Or should I focus on having 10-13k less in downpayments but 10-13k less in loan balances?   I'm guessing that'd come down to DTI as well, but generally which looks better? 

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5 REPLIES 5
Revelate
Moderator Emeritus

Re: Student loans, Average Age, and optimal credit

Mortgage when it comes to existing loan balances is all about the DTI.  Loan size or amount remaining doesn't matter anymore to my limited understanding (you may get a better answer in the mortgage forum).

 

Downpayment / asset reserve equates to what size house you can afford.

 

Assuming the GSE's stay on the FICO 04/98 mix they're on currently, I'd do what makes sense financially: pay them quicker and save that 13K if I understand your plan right.

 

Generally speaking, financial savings > FICO score; this doesn't hold when we're talking trivial cash amounts like the $500 share secured loans which are becoming popular on this forum, but virtually all student loans, most auto loans, and certainly mortgage loans don't fall into that.




        
Message 2 of 6
Networth
Frequent Contributor

Re: Student loans, Average Age, and optimal credit

Save for the down payment mortage companies actually look favorably on student loan debt (considering it is debt). This is of course assuming your not in default/late payments etc. As PP said the bank is going to mainly focus on 3 things, the amount of the loan, your credit score, and your income in relation to the loan amount your apply for. Only time they get into the nitty griddy of credit reports is if their is an issue in my experince and from what I have heard from a friend who works in the mortage industry.  Best of luck. 

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Message 3 of 6
jamie123
Valued Contributor

Re: Student loans, Average Age, and optimal credit

CASH IS KING!

 

It won't matter how many student loan accounts you have. They will add up all the debt and payment requirements together when calculating your DTI. Keep your required payments as low as possible. If splitting the loans enables you to get one or more loans paid off before the mortgage app, do it. If you can't reduce your required payment amount that way just leave the loans as they are.

 

Save your extra money for the down payment. As you get closer to mortgage app time you can decide then if it is worthwhile to throw some of your down payment money at the student loans if needed. A lot of things can happen in 4 years and I think there might be some political action to make student loan payback easier in the coming years, but who knows? At least you will have the money and can make a decision when it is nearer to mortgage app time. It's as easy as cutting a check then, but if you spend the money now you will have already made the decision.

 

You are very smart in trying to come up with a long term plan! Four years till mortgage app time gives you plenty of time to build a rock solid credit score and history.

 

I don't know how many credit cards you currently have but I would suggest getting the total number of credit cards you have up to 5 or 6 as quickly as possible. You want to have any new credit in place 2 years before the mortgage app if possible. This way, all the inquiries will have dropped off your reports, none of your credit will be considered new and before you do the mortgage app and your credit scores will have 2 years to grow.

 

I wouldn't worry too much about your AAoA as it should still be at least somewhere around 3 years old at mortgage app time which is plenty.

 

EDIT: I just discovered all your credit cards in your siggy. You are doing just fine! Pay your bills on time and you will be golden in 3 years!


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Current Score: EQ 817 3/10/20 - EX 820 3/13/20 - TU 825 3/03/20
Message 4 of 6
takeshi74
Senior Contributor

Re: Student loans, Average Age, and optimal credit


@Raccoon290 wrote:

What i'm wondering regarding the benefit is how the lower balanced accounts (also the highest interest ones, fortunately) being paid off will look on my report


Paid won't help much if at all.  Paid installments generally don't help.  Put your money towards the down payment and keeping your revolving utilization down.

Message 5 of 6
Raccoon290
Established Member

Re: Student loans, Average Age, and optimal credit

Thanks everyone,.

 

I decided to go with the split because in the short term it'd raise my DTI slightly until the first loan was paid off ($1666 would be less than one year really), then drop it.  Another DTI drop would be a year or so later when the next one falls off.

 

p.much I'm at $314/month in loans, splitting will bring me to $341/month short term then it drops to $291/month and then lower, which is good for the DTI. Plus it increases the AAoA, number of accounts in good standing, PIF accounts, and allows me to clear the debt a few months earlier with less total paid.

 

All in all it seems worth seeing a total minimum due increase by 23 dollars for about a year. 

 

 

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