How does paying off a student loan affect credit score

[kal9988]

I have a $20,000 student loan (already consolidated). I know having an old open account helps your credit score, but if I pay off $10,000 of that, will that raise my score?

[trdmlc]

Not likely, as installment loans do not factor into utilization %.  It will help with your DTI if you're buying a house, but DTI doesn't factor into your score.

[MarineVietVet]

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@kal9988 wrote:

I have a $20,000 student loan (already consolidated). I know having an old open account helps your credit score, but if I pay off $10,000 of that, will that raise my score?

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Hello and welcome to the forums.

It won't help your score per se but you'll be $10,000 less in debt and that is priceless!!! 

From a BK years ago to:
9/09 EX pulled by lender 802
3/10 EQ- 800
6/10 TU -772

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Whats In Your FICO Score

[kal9988]

Thanks! I've heard that paying at least 35% of the original loan does raise your credit score.

Fico itself lists among things that affect your credit score: "Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)"

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

By making the $10,000 payment, I'll have paid around 40-45% of the original balance. Based on the above info, will this raise my score?

[trdmlc]

It's unlikely.  This would only be considered if the loan reported a credit limit to base the balance against.  Most installment loans do not have credit limits.  I know my student loans do not report a CL.

When your score is calculated it doesn't say "last month you owed 50,000 and now you only owe 40,000, so I'm going to bump you up."

It simply looks at your report and calculates based on that moment.  You're overall debt isn't considered, only utilization percentage.

[kal9988]

then why would fico's own page say that's a factor? My report does list the original loan balance and what the current balance is.

[Lel]

"Utilization" of an installment loan's balance represents a comparatively small portion of one's FICO score.  But in theory, paying down installment balances can improve one's score.  But it is perhaps equally likely that no discernible change will occur.

In my experience, when I consolidated my student loans a few years ago, I had no significant change in score, even though 4 student loan balances were closed with zero balances and a new student loan account was opened.  Just last month, I paid the student loan down to 1/3 of the original loan balance, and my score hasn't budged.  My current balance and original balances are being reported.

[kal9988]

I hear ya. I wish there was a way to know for sure. The major events of our lives revolve around credit reports and scores, the workings of which are mysteries.

[MarineVietVet]

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@kal9988 wrote:

I hear ya. I wish there was a way to know for sure. The major events of our lives revolve around credit reports and scores, the workings of which are mysteries.

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One thing you can be sure of. It certainly won't hurt your score. 

IMO reducing and/or paying off debt always comes first. Others have different opinions.

From a BK years ago to:
9/09 EX pulled by lender 802
3/10 EQ- 800
6/10 TU -772

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Whats In Your FICO Score

[silentdance]

So even paying it off completely might not better your score? Bummer. Once below 35% utilization, should I maintain a balance to establish positive payment history--instead of paying it all off at once?