How does credit scoring treat deferred student loans/no scheduled payment?

[smile90000]

How does credit scoring treat student loans that are in deferment or have no scheduled monthly payment?

I have 5 student loans

3 private (paying)

2 government (no scheduled payment amount as I'm currently on income based repayment and my payment is 0)

I am able to pay off my 3 private student loans by the end of the year. HOWEVER, I'm unclear as to what this will do to my credit score.

When I look at my credit report the three private loans are each listed as an installment loan AND list the scheduled payment amount

When I look at the credit report the government loans are each listed as an installment loan BUT DO NOT LIST A SCHEDULED PAYMENT AMOUNT. 

I could stretch one of the private student loans out to September 2018 if I need to keep an installment loan on there. I'm just unclear if I need to as the government loans are installments loans BUT they don't have a scheduled payment amount listed. 

Scores: 801 (just achieved this week! Yepee!) 790, and 801 (also achieved this week (Yepee again!)

My motivation to pay the loans off early is it is private loan the interest rate is variable. I just don't want my scores to tank if I do it! 

[Anonymous]

Hello Smile!  These are such great questions.  I will address them in two different ways: theory and practical advice.  (That's because you seem interested in both.)

Theory

There is a chance that student loans (particularly those tagged by the CRA as being in deferment) may be scored differently from other kinds of student loans.

Luckily we have a guy who is testing that right now.  He has a profile in which all of his open installment accounts are student loans in deferment.   His current amount owed is almost entirely the original amount.  Just last week he added a new personal loan via Alliant and has also paid off almost all of it.  FICO loves it when you have open loans and all of them are almost but not entirely paid.  The Alliant loan has not yet appeared on his reports.

If FICO is ignoring his in-deferment SLs, then when that Alliant loan appears it will give him a big boost to his score.  If FICO is scoring those SLs just like any other loan, he will get no benefit.  We should have his test results by mid-May.

Practical advice

First thing you should do is contact the companies that are handling your loans.  Find out if they will permit you to do something called pre-payment.  That's where, if you make a huge lump sum payment on the loan, it enables you to stop making payments, because the next "date due" has been pushed way into the future.  If they allow this (many lenders do, quite a few do not) then you are set.  Pay off most of the loans at your convenience and extend the next due date.  Because most of the principle has been paid off, you will be paying very little in interest.

If a loan handler won't permit pre-payment, that typically means that an early big payment will not cause your monthly payments to stop, and therefore it will shorten the life of that loan.  Do the math and try to keep that loan open as long as you can but balance that against paying interest you don't like.  Paying off any loan entirely affects something called your installment utilization and that can affect your score.

Next thing you should do is watch for our friend's test results.  His screenname is aw60615.  You can send him a private message but he will also no doubt post his results in the Share Secure Loan Technique thread:

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...

Hopefully we can get him to post his results in your thread too.

PS.  I encourage you to read the first two posts of that SS loan thread, especially the "theory" post which is post #2.  It will help you understand how FICO scores installment loans in general.  It does not touch on this weird corner case of whether FICO might ignore SLs or SLs that are in deferment.  We'll know more about that soon, I hope.

Thanks for asking about this!

[smile90000]

Wow! Thanks for taking the time to provide such a thorough response. 

1. My private student lender does allow prepayment...pushing back the next due date of the next payment, so I will start paying them down...but not off and see how things progress. 

2. Things to note,

My private loans (my active installment loans) do not appear on my Transunion report , but they DO appear on Equifax and Experian.  

My governement loans (deferred or income-based $0 due loans) appear on all three

My Transunion score is 790 and my Equifax and Experian are both 801. I'm not sure if the absence of the private student loans (my only active installment loans) accounts for the lower score but it might. I will stay tuned to what aw60615 discovers. 

Thanks again! 

[Anonymous]

How long have your private loans been appearing on EQ and EX?  I.e. when did they first appear on each report?

[smile90000]

The private loans are about 15 years old. They have been appearing on Experian and Equifax for at least 10 years (I wasn't always diligent about checking my credit report before then).

I have no clue why they never appeared on Transunion.  

I thought about trying to push to get them on Transunion, but I was so afraid something would go crazy (i.e. report the wrong balance), that I just let it be. 

FYI, the government ones are at about 99% utilization (six figure debt) and the private ones are about at 20% to 27% utilization.  

[Anonymous]

Good.  That' clear.  So it's not like we just need to give TU another month or two.

Let's wait to see what the results are of our friend's test.  We should know by mid-May.  If he sees a big improvement, you can try adding an SS loan too -- if only for your TU score.