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Scoring advantage to paying installment to 8%

Scoring advantage to paying installment to 8%

Good day! I have been lurking for a few months and have learned so much and I thank you!
I have 3 student loans, and I am able to pay the 2 smaller ones down to less than 8%. I could also pay those smaller 2 completely off quite soon if it would be advantageous. Is there any scoring advantage to doing either, even though the remaining loan will still have a high balance?
My Amex fico was 707 last month, but I have added revolvers and my fakos have plummeted. The smaller 2 loans have the only derogatory information on my credit reports, btw. Thank you!
Message 1 of 8
7 REPLIES
Valued Contributor

Re: Scoring advantage to paying installment to 8%

The derogs aren't going to disappear once the loans have closed, so don't let that play a part in your decision.

 

What are your loan balances and their original amounts? That'll help the gurus here come up with a better answer for you. Without specifics, my guess is that you're better off keeping the smaller loans open and putting most of your money toward the larger one. That's because "installment utilization" is based on the original amount of all open loans.

Message 2 of 8
Senior Contributor

Re: Scoring advantage to paying installment to 8%

Like revolving accounts, installment loan utilization is looked at in an aggregate sense.  What you want to do is figure your installment loan utilization right now (total balances divided by total original balances across all 3) and then if you were to pay off 2 of them take the balance of the third and divide it by the original amount of the third.  With 2 of them closed, your remaining loan would be equal to your aggregate installment loan utilization.  If the remaining loan has a utilization above 8.99%, chances are you won't see a significant gain from paying off 2 of your student loans.  While it's difficult to quantify, most say they see around 15-20 points from paying aggregate installment loan utilization across the 8.99% threshold.  So, if a loan is "worth" 30 FICO points, that means there's only 10-15 more points gained across the wide range of paying installment loan utilization down 91% from 100% to 9%. 

 

Completely aside from the scoring topic though, it's ALWAYS a smart move to pay off debt, so I think you're doing the right thing by paying of a loan or loans when looking at the overall/big picture.

Message 3 of 8

Re: Scoring advantage to paying installment to 8%

Thank you for the replies so far! Here are the 3 loans:
LoanA: original 2625; remaining balance 386 ; interest 3.28%
LoanB: original 4000; remaining balance 589; interest 3.28%
LoanC: original 11073; remaining balance 5353; interest 5.125%
Go ahead, gurus! And thanks!
Message 4 of 8

Re: Scoring advantage to paying installment to 8%

I think my loans combined are at 36% of their original amounts. Are there any scoring thresholds between that and 8%?
Message 5 of 8
Senior Contributor

Re: Scoring advantage to paying installment to 8%

If there are, they aren't well documented and very few points are achieved by crossing any of them.  The biggest and most obvious gain is when installment loan utilization hits 8.99% or below.

Message 6 of 8
Valued Contributor

Re: Scoring advantage to paying installment to 8%


AppalachianMama wrote:
Thank you for the replies so far! Here are the 3 loans:
LoanA: original 2625; remaining balance 386 ; interest 3.28%
LoanB: original 4000; remaining balance 589; interest 3.28%
LoanC: original 11073; remaining balance 5353; interest 5.125%
Go ahead, gurus! And thanks!

Looks like you need your installment balances to report $1575 total but remember that interest will post on your statement cuts so probably need to pay it down to $1575 MINUS whatever interest will post that month.

 

So call it $4752 + interest posting in paydowns to get below the 9% threshold. 

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Message 7 of 8

Re: Scoring advantage to paying installment to 8%

Thank you. I can't say I am not a little disappointed. I guess I need to just keep chipping away at those loans. I so appreciate the clarification!
Message 8 of 8