Effects of paying off private loan on credit

s10sleeper · ‎07-22-2013

While going to college I had to max out my Stafford loans, both subsidized and unsubsidized. I also had to take out a private loan. I did not like having to borrow that much but, being a non traditional student with no other assistance I had no choice. Due to some health problems I had to withdraw from school and was fired from my job, so my Stafford loans have been in a hardship forbearance for quite awhile. On my private loan, if I did not have the money to pay the monthly payment, my cosigner did, so for 2 years it was paid every month. Suddenly my cosigner decided to surprise me and 2 days prior to Julys payment, he paid it all off in one lump sum of over $9,000. I found out on the 5th when I got my statement, and couldn't believe it, though it was a relief.

Anyways, if I remember correctly, since I have such a high debt to credit ratio and poor credit due to medical bills I was unable to pay during the 2 year period before Medicare kicked in, the lump sum payment should help my FICO score more than continuing to make payments. I keep all of my other loans in good standing and am currently focusing on newer debts and working towards the older debts on paying them.

Anyways, I am not completely certain the effect this will have on my credit. I am currently about $100,000 in debt, 75,000 being student loans.

bahbahd · ‎07-23-2013

Negligible effect if any at all. Paid SL vs Open SL, both with positive histories, carry nearly the same weight. The only real benefit would be a manual review showing over all lower outstanding debt. Now if they had paid off $9k of your credit card debt and your revolving credit utilization % dropped significantly, you could expect to see more of a score increase. Unfortunately, paying off installments does not normally result in huge fico swings. You should just feel more secure in life knowing the private loan is out of the way.

pizzadude · ‎07-23-2013

+1. Congrats on not having to worry about paying this debt ~ your FICO score shouldn't be impacted.

March2010 FICO® ~ 695 TU, 653 EQ, 697 EX

s10sleeper · ‎07-23-2013

Thanks, I definitely remember with revolving credit it is better to carry a balance but pay more than the minimum compared to paying the full balance each month, I just couldn't remember on installments. At this point any improvement is better than none at all as my credit is horrible now even though I worked really hard to get it back up a few years ago.

ebenbow · ‎07-24-2013

That is all sorts of wrong. Carrying a balance does not improve your credit. Pay off the credit card in whole every month. A balance will still be reported. You are paying interest for no good reason.

s10sleeper · ‎07-25-2013

Carrying a balance on a credit card can help, however, that can also depend on your debt to credit ratio. Given that you do not have a large amount of debt, this shows that you are make your payments on time and are capable of handling debt. It does no harm as long as you are making more than the minimum, and not maxing out the card. Some debt can be better than no debt, and also a difference between good debt and bad debt

lg8302ch · ‎07-25-2013

@s10sleeper wrote:
Carrying a balance on a credit card can help, however, that can also depend on your debt to credit ratio. Given that you do not have a large amount of debt, this shows that you are make your payments on time and are capable of handling debt. It does no harm as long as you are making more than the minimum, and not maxing out the card. Some debt can be better than no debt, and also a difference between good debt and bad debt

For Fico only if less than 9% and on 1 account...rest report with 0 balance will get your scores at best. Carry a balance help? It depends what you understand by help...definitey will help the banks with getting interest from you but other than that I have not seen any positive compared to PIF