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Commandolam
Posts: 74
Registered: ‎03-07-2013
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Does Paying Off Students Loans Boost Credit Score?

[ Edited ]

So whenever I got a new card, there'd be a piece of mail sent to me telling me things that adversely affected my credit score. One of the things that come up that I'm not sure about is high debt to credit limit ratio or something like that. I'm sure they don't mean my credit card debt which is like 4% of my total limit.  Do they mean my student loans?

 

They're deferred until 2016 and subsidized so I took them out to invest with, but are they negatively affecting my credit card applications?  I can pay them off in full right now. Is it worth doing so before I apply for higher tier cards like CSP or request a big credit limit increase (3x Amex CLI)?

 

Edit: Title

Age: 20 | AAoA: 1.1 Years | TU Fico: 725 | EX Fico: 719 | EQ Fico: 693
Last App: 12/09/2013
Valued Contributor
FocusedAndDetermined
Posts: 6,379
Registered: ‎01-05-2013
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Re: Does Paying Off Students Loans Boost Credit Score?

Debt reduction is always a good thing.

 

If you have the means why not just pay them off, since interest will accrue even while deferred?  If your investments are earning more than you are paying in interest, you may want to pay over time rather than all at once.  You are the best judge of your financial picture.


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GoldenloveNY
Posts: 243
Registered: ‎02-29-2012
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Re: Does Paying Off Students Loans Boost Credit Score?

Trust me, as a college student myself, if you can make a payment to your student loans (whatever the amount), do it! Don't pull if off. Of course, if you can't, then it's okay, but really try to reduce your debt any how you can.

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andre181
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Re: Does Paying Off Students Loans Boost Credit Score?


FocusedAndDetermined wrote:

Debt reduction is always a good thing.

 

If you have the means why not just pay them off, since interest will accrue even while deferred?  If your investments are earning more than you are paying in interest, you may want to pay over time rather than all at once.  You are the best judge of your financial picture.


Subsidized means the Federal government is paying the interest. The OP has no obligation to pay the interest while they are in school or in period of deferment.

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FocusedAndDetermined
Posts: 6,379
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Re: Does Paying Off Students Loans Boost Credit Score?


andre181 wrote:

FocusedAndDetermined wrote:

Debt reduction is always a good thing.

 

If you have the means why not just pay them off, since interest will accrue even while deferred?  If your investments are earning more than you are paying in interest, you may want to pay over time rather than all at once.  You are the best judge of your financial picture.


Subsidized means the Federal government is paying the interest. The OP has no obligation to pay the interest while they are in school or in period of deferment.


Correct - overlooked that detail.


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Commandolam
Posts: 74
Registered: ‎03-07-2013
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Re: Does Paying Off Students Loans Boost Credit Score?


FocusedAndDetermined wrote:

Debt reduction is always a good thing.

 

If you have the means why not just pay them off, since interest will accrue even while deferred?  If your investments are earning more than you are paying in interest, you may want to pay over time rather than all at once.  You are the best judge of your financial picture.


 

Thanks for your input.  Ignoring the interest and investment thing, would you say having a student loan balance is why they keep saying my total debt to limit is too high?

Age: 20 | AAoA: 1.1 Years | TU Fico: 725 | EX Fico: 719 | EQ Fico: 693
Last App: 12/09/2013
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FocusedAndDetermined
Posts: 6,379
Registered: ‎01-05-2013
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Re: Does Paying Off Students Loans Boost Credit Score?


Commandolam wrote:

FocusedAndDetermined wrote:

Debt reduction is always a good thing.

 

If you have the means why not just pay them off, since interest will accrue even while deferred?  If your investments are earning more than you are paying in interest, you may want to pay over time rather than all at once.  You are the best judge of your financial picture.


 

Thanks for your input.  Ignoring the interest and investment thing, would you say having a student loan balance is why they keep saying my total debt to limit is too high?


That would be my guess, since you state your utilization is around 4%.  You can wait for a response from a more seasoned expert, but I have the same notation on my reports, and my utilization is at or below yours.  My installment loans are the only accounts with "high balances", but are way down from starting point.  I pay well above the required amount. 


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Cdnewmanpac
Posts: 767
Registered: ‎01-16-2012
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Re: Does Paying Off Students Loans Boost Credit Score?

1. This should probably be in the understanding scores forum, where the true fico nerds hang out.
2. Most issuers have their computers set to generate 3 or 4 of these reason codes. It is unlikely that all 3 or 4 were actual factors in a decision. If you don't have negatives, these can be comically obtuse. But the computer has to print something, so you get reasons like yours. I wouldn't worry.
3. By and large, card issuers ignore student loans (unless they are delinquent). When I paid off my undergrad loans, there was zero effect on my score and when the originals fell off my report, my score actually went down. If you have a few cards, use them well and in a year, that will really be the only thing issuers pay attention to. Pay off your loans at the pace that makes the most sense financially.
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SnackTrader
Posts: 1,566
Registered: ‎09-15-2012
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Re: Does Paying Off Students Loans Boost Credit Score?

So, my situation was very similar to yours when I started applying for credit cards, and I found that my loan balances actually were holding me back.

See, on your credit report, your loans are reporting at their credit limit because you have made no payments on them. Credit scoring doesn't seem to understand the nature of deferment, so it appears that you are basically a degenerate borrower. It was my assumption that my credit score was being hit by this. For example, I had I subsidized loans that were reporting a balance of over $16,000 and an original credit amount of $15,000. I was being dinged for that it seemed. I also had subsidized loans reporting a balance of $5,000 and an original amount of $5,000. Once I paid ALL of the loans down to about 80% of their original amount, I was approved for 3 great cards at great limits.

However, I can't guarantee that all of this was correlated. But I stopped getting the "loan balances are too high" message. So it must have done something.

My advice to you is to not worry about any of it too much for the time being. Use your funds for more important things, and only pay down your student debt when you are ready to do so and after you leave school. Obviously, you want to save on interest charges, so the sooner they are gone the better. But if you are still in school, you will just have to deal with the consequences of how credit scoring interprets your loan balances.

Good luck!

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youngandcreditwrthy
Posts: 6,242
Registered: ‎08-16-2012
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Re: Does Paying Off Students Loans Boost Credit Score?

They don't affect your score too much. Id say your aaoa is affected more than anything...
I am pretty sure , however... That it is absolutely ILLEGAL to invest with student loan proceeds...

Be careful.
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