Paying off Student Loans to Increase Score by 29 Points According to Lender

[daudi81]

So my mortgage lender and I were trying to come up with a plan of attack to get my score up as quick as possible (I need 10 points asap). He has access to some simulator that apparently is *very* accurate for mortgage scores. We ran some simulations and it came up with a scenario of raising my score by 29 points by paying off all my student loans. The Myfico simulator is saying something fairly similar (although only raises it by 15-20 points).

I told him that simulators are usually not entirely accurate. But he said the one he has is very accurate. However, I am a little skeptical, and I would have to pay down around $30-40k instantly which is a lot of cash to "test" this simulators validity. I mean I need to pay off the student loans eventually anyway, so it wouldn't be a total loss if my score didn't go up. But I'd rather not put down that much cash if it's not going to really help matters.

So my questions are:

1) has anyone ever heard of CreditXpert What-If Simulator: https://www.credco.com/mortgage-broker/credit-services/creditxpert.aspx ? If I recall correctly, I think you input your scenarios, and when you submit the "form" it goes through a manual process by which they temporarily update your report as per your scenario and spit out what your score would be. I could be worng, but I think that's how it was explained to me.

2)  has anyone had any experience paying off student loans (or paying down the balance considerably), and having their score raised? The last time I paid something off (my car), it lowered my score considerably.

I currently have student loans from 2 different vendors (UHEAA & Fedloan Servicing). They each have 3-5 loans with balances around $3k-$7k. Most of the balances are near the limit as I've just started to make payments on them about a year ago. I may try fronting about $20k and making the balances about half of what they currently are to see if that raises my credit. I only need about 10 points and I'm golden.

Thanks

[Anonymous]

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@daudi81 wrote:

So my mortgage lender and I were trying to come up with a plan of attack to get my score up as quick as possible (I need 10 points asap). He has access to some simulator that apparently is *very* accurate for mortgage scores. We ran some simulations and it came up with a scenario of raising my score by 29 points by paying off all my student loans. The Myfico simulator is saying something fairly similar (although only raises it by 15-20 points).

I told him that simulators are usually not entirely accurate. But he said the one he has is very accurate. However, I am a little skeptical, and I would have to pay down around $30-40k instantly which is a lot of cash to "test" this simulators validity. I mean I need to pay off the student loans eventually anyway, so it wouldn't be a total loss if my score didn't go up. But I'd rather not put down that much cash if it's not going to really help matters.

So my questions are:

1) has anyone ever heard of CreditXpert What-If Simulator: https://www.credco.com/mortgage-broker/credit-services/creditxpert.aspx ? If I recall correctly, I think you input your scenarios, and when you submit the "form" it goes through a manual process by which they temporarily update your report as per your scenario and spit out what your score would be. I could be worng, but I think that's how it was explained to me.

2)  has anyone had any experience paying off student loans (or paying down the balance considerably), and having their score raised? The last time I paid something off (my car), it lowered my score considerably.

I currently have student loans from 2 different vendors (UHEAA & Fedloan Servicing). They each have 3-5 loans with balances around $3k-$7k. Most of the balances are near the limit as I've just started to make payments on them about a year ago. I may try fronting about $20k and making the balances about half of what they currently are to see if that raises my credit. I only need about 10 points and I'm golden.

Thanks

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I have no experience but that's an awful lot of money to get points fast. To be realistic, what happens if something else pops up, like a CA crawls out from under a rock thinking you're a good target (even if the debt is uncollectable)? The mortgage board is filled with stories of that happening.

It just seems like putting down that much cash for a score bump that could, unfortunately, dissolve in short order is a risky move. 

[gdale6]

Thats a link to a CRA OP. Personally I would not be paying off those SLs nor reducing their balance substantially. I would be looking to raise your score in other ways. Whats you revolving profile like?  Derogs on file ?

[daudi81]

Thanks for the responses.

What is a CA and a CRA OP ?

I have quite a few derogs on my file. There was a brief period in early 2013 I had multiple lates across 3-4 credit cards. It added it up to maybe 10-12 (30-60) day lates within a small 1-3 month time period. And another late mid 2014 (see below).

2 weeks ago my scores were 663. 665, 670 (mortgage scores). Fico 8 scores were much higher.

However I had 2 60 day student loan lates in 2014 (actually 1 late across 2 loans) that I recently was able to get removed (woop!) with persistent GW letters. This raise my scores to their current mortgage scores of 689, 697, 709 (mortgage scores). 707, 714, 731 Fico 8.

I need a 700 to close on the mortgage, so we're thinking a good 10 point buffer above my mid score of 697 would be a safe bet (705 - 710 mid fico mortgage scores).

There's not a whole lot of room to raise my scores. I have a lot of revolving credit, but they're all $0 balances except my Chase card which always sits around a 1-5% balance to limit percentage. The rest of my tradelines are installment loans, that include a car payment and those student loans. My installment balance to limit percentage is pretty high, but I always thought that was ok with installment loans.

I can see why paying the student loans off would be risky (closing multiple tradelines), but I'm not sure why paying them down to maybe 50% of their current balance would be risky? I figure worst case scenario, my score does not move. Best case scenario my score goes up. Can reducing balances on installment loans be negative in any way?

If you see anything from my post that you think I can do right away, other than paying down the student loans - let me know.

Thanks!

[Anonymous]

CA = Collection Agency

CRA = Credit Reporting Agnecy

OP = Original Poster.

I have seen others report that reducing their SL balances to under 50% resulted in a score increase.

[daudi81]

NormanFH,

Thanks, that's encouraging. I also think it's logical that it would increase the score (although maybe not by 30 points)....especially when every score simulator I've tried gives me similar results. I know simulators are just simulators, but there must be something to it if they all say the same thing.

I think I am going to move forward and pay maybe $10k-15K off and assess the score increase after that. My only concern is how to go about doing this.

My credit report shows that I have maybe 7-10 different small student loans from 2 different creditors (fedloan servicing & uheaa) - each having a balance of a few thousand dollars. 

Ex:

Loan1: $3500

Loan2: $4700

Loan3: $4300

Loan4: $4500

Loan5: $3200

Loan6: $7000

Loan7: $8400

Each of these is reporting as an actual tradeline in my report. I'm guessing I should not pay any one loan off, but maybe reduce the balance of each loan by 30-50% - so that my open tradelines stay the same, but the balance of each is greatly reduced. Does that sound about right?

[gdale6]

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@daudi81 wrote:

Thanks for the responses.

What is a CA and a CRA OP ?

I have quite a few derogs on my file. There was a brief period in early 2013 I had multiple lates across 3-4 credit cards. It added it up to maybe 10-12 (30-60) day lates within a small 1-3 month time period. And another late mid 2014 (see below).

2 weeks ago my scores were 663. 665, 670 (mortgage scores). Fico 8 scores were much higher.

However I had 2 60 day student loan lates in 2014 (actually 1 late across 2 loans) that I recently was able to get removed (woop!) with persistent GW letters. This raise my scores to their current mortgage scores of 689, 697, 709 (mortgage scores). 707, 714, 731 Fico 8.

I need a 700 to close on the mortgage, so we're thinking a good 10 point buffer above my mid score of 697 would be a safe bet (705 - 710 mid fico mortgage scores).

There's not a whole lot of room to raise my scores. I have a lot of revolving credit, but they're all $0 balances except my Chase card which always sits around a 1-5% balance to limit percentage. The rest of my tradelines are installment loans, that include a car payment and those student loans. My installment balance to limit percentage is pretty high, but I always thought that was ok with installment loans.

I can see why paying the student loans off would be risky (closing multiple tradelines), but I'm not sure why paying them down to maybe 50% of their current balance would be risky? I figure worst case scenario, my score does not move. Best case scenario my score goes up. Can reducing balances on installment loans be negative in any way?

If you see anything from my post that you think I can do right away, other than paying down the student loans - let me know.

Thanks!

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Ok, there isnt any room to raise score by paying down CC balances then since you have already done that. I would continue to go after your derogs with GW letters until you get what you are after. There isnt anything negative in paying off SLs, in fact I see your post that you have 7 of them, might try totally retiring 3 of them and reducing the balances on the others.

[Anonymous]

I don't think the balance of an installment TL matters as much as the fact that it's an open TL.  Even if you pay the balances all down to 50% your DTI will remain the same because your monthly payment will remain unchanged.  Have you had him run the scenario that you pay off a few of SL TLs rather than all of them?  That would lower your DTI.

[reneasworld]

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@daudi81 wrote:

NormanFH,

Thanks, that's encouraging. I also think it's logical that it would increase the score (although maybe not by 30 points)....especially when every score simulator I've tried gives me similar results. I know simulators are just simulators, but there must be something to it if they all say the same thing.

I think I am going to move forward and pay maybe $10k-15K off and assess the score increase after that. My only concern is how to go about doing this.

My credit report shows that I have maybe 7-10 different small student loans from 2 different creditors (fedloan servicing & uheaa) - each having a balance of a few thousand dollars. 

Ex:

Loan1: $3500

Loan2: $4700

Loan3: $4300

Loan4: $4500

Loan5: $3200

Loan6: $7000

Loan7: $8400

Each of these is reporting as an actual tradeline in my report. I'm guessing I should not pay any one loan off, but maybe reduce the balance of each loan by 30-50% - so that my open tradelines stay the same, but the balance of each is greatly reduced. Does that sound about right?

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On the Fedloan site you make one payment but specift how much of goes to each loan. All my loans are with them And there are in nonpayment mode but I like to pay the interest on the loan so they do not balloon too much.

[daudi81]

I don't care about DTI as much as I do about my actual score. I don't think Fico algorithm has DTI as a credit scoring factor as much as the actual bank uses it as a factor on how much they'll loan you. I could be wrong though - someone correct me if I am?

I earned a little over 7 figures last year ($1,085,000), and we're appying for a $950k house, but we're putting about 25% down so payments will be around $4000/mo. The only debt I have is those student loans (~$500/mo), a really small credit card balance ($50/mo), and one auto lease ($1350/mo). So, assuming we get approved for the home, my debt would be about $6k/mo in debt, which puts my DTI around .05%. I think the loan we're going for requires less than 40% DTI. But it requires at least a 700 mid fico score, which we're right on the edge with. If only mortgage lenders used FICO 8 instead of the decade old one they use now =/