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Super Contributor
Posts: 6,198
Registered: ‎09-18-2007
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What is the effect of paying down student loans on scores

In the fico simulator, I did not see any score increases when used pay down student loan. Is there any score increase if we paydown the student loan debt?

Established Contributor
Posts: 816
Registered: ‎06-23-2010
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Re: What is the effect of paying down student loans on scores

Impact is not any different than other installment loans.  The payment history is what is most important.  You can see a small fluctuation by paying down your balance in contrast to the amount you originally borrowed.  It works similar to the way credit card utilization works, but is typically a low impact.

 

Other than Fico, paying down your balance faster saves you money in the long run with less interest and/or compounding interest.


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Super Contributor
Posts: 6,198
Registered: ‎09-18-2007

Re: What is the effect of paying down student loans on scores

So is student loan is considered as another installment loan for the credit score purposes? If we do not have other installment loans then student loan can be used as an installment loan for the credit scoring purposes?

Established Contributor
Posts: 816
Registered: ‎06-23-2010

Re: What is the effect of paying down student loans on scores

Yes, that is correct; it is an installment loan on your credit.  So after you pay it off, it will remain on your credit report for 10 years.


Starting Score: Eq: 662 Tu: 532 (03/02/2011) CH7BK 01/12/2009 Discharge
Current Score: Eq: 712 (02/03/2017) Tu: 717 (04/03/2013)
Goal Score: Eq: 760 Tu: 760

Wallet: Chartway Visa 12.5k | AMEX Blue Cash (AU) 49.5k | Cap One QSMC 26.5k | AMEX Platinum NPSL | LFCU Visa 11k | PenFed Power Cash 10k
Super Contributor
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Registered: ‎09-18-2007
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Re: What is the effect of paying down student loans on scores


Tazman81 wrote:

Yes, that is correct; it is an installment loan on your credit.  So after you pay it off, it will remain on your credit report for 10 years.


So technically I can keep student loan for next few years and use it as my installment loan for the credit mix. With large amount of loan it will take some time to pay it off any way. Once it is paid off will it still help for the credit scoring purposes ?

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Posts: 1,666
Registered: ‎06-30-2016
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Re: What is the effect of paying down student loans on scores

[ Edited ]

concorduser wrote:

Tazman81 wrote:

Yes, that is correct; it is an installment loan on your credit.  So after you pay it off, it will remain on your credit report for 10 years.


So technically I can keep student loan for next few years and use it as my installment loan for the credit mix. With large amount of loan it will take some time to pay it off any way. Once it is paid off will it still help for the credit scoring purposes ?


Yes, but if you CAN pay it, you should. You can get a shared secured loan to replace it and it won't cost you as much money. 

 

Also, there's some speculation that student loans weigh lower than other installment loans.


EX08 659 EQ08 660 TU08 695 Starting: mid 300'sGoal: 700
Super Contributor
Posts: 6,198
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Re: What is the effect of paying down student loans on scores


Yes, but if you CAN pay it, you should. You can get a shared secured loan to replace it and it won't cost you as much money. 

 

Also, there's some speculation that student loans weigh lower than other installment loans.


Thanks.I am planning on paying off the student loan after all the high interest credit cards are paid off. I have a car loan and paid off 95% of the loan and keeping it alive with 5% balance until the full loan term to pay off the balance. I can always add another car loan in the future if necessary. For next 24 months I want to focus on brining the balances down and avoid adding new credit accounts to catch up with the scores.

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Valued Contributor
Posts: 1,666
Registered: ‎06-30-2016
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Re: What is the effect of paying down student loans on scores

[ Edited ]

concorduser wrote:

Yes, but if you CAN pay it, you should. You can get a shared secured loan to replace it and it won't cost you as much money. 

 

Also, there's some speculation that student loans weigh lower than other installment loans.


Thanks.I am planning on paying off the student loan after all the high interest credit cards are paid off. I have a car loan and paid off 95% of the loan and keeping it alive with 5% balance until the full loan term to pay off the balance. I can always add another car loan in the future if necessary. For next 24 months I want to focus on brining the balances down and avoid adding new credit accounts to catch up with the scores.


Sounds good.

 

Don't feel the need to get another car loan. A shared secured loan is just an installment loan secured by collateral in a savings account. You can pay down to 10% and let it ride the remainder of the loan period for the installment loan boost. ^_^


EX08 659 EQ08 660 TU08 695 Starting: mid 300'sGoal: 700
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Senior Contributor
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Registered: ‎07-17-2014

Re: What is the effect of paying down student loans on scores

Hi Concord.  Great comments by others.

 

I encourage you, as you make plans regarding your student loans, to reach out to the company that is handling them.  You should find out if you can make big payments that will cause the next payment "due date" to get projected far into the future.  Many companies permit this.  If so, you can pay the principal way down as soon as is convenient, which will cause the interest your loan generates to become neglibible.  But at the same time you can keep the loan(s) open for a long time.

 

This approach will help your AAoA by having accounts continue to age and it will protract the period where you (a) still have open debt and (b) the reports show the open loans as being mostly paid off.  FICO loves that.

 

Paying loans off entirely can result in score loss, but that is easy to prevent if you keep the folks here in the loop.  They can guide you through simple tricks to maintain that great status of always having open debt that is mostly paid off (and therefore costs you only pennies in interest).

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