Will taking a 401k loan affect your FICO score?

[Anonymous]

Hi,

      I've been fixing up my house so I can sell it and more up to a bigger one.  However, I've recently broken 700 for the first time, but now I've racked up some credit card debt from home improvement projects (50% of one's limit and 75% of the others).  I have some money stored away in stock, but I don't want to touch it because of the tax implications.  Does a 401k loan have the same effect on your FICO score as any other loan, or does this count as borrowing money from yourself somehow?  I'd hate to lose half a percent on my next mortgage by screwing this up and I'd much rather pay the taxes incurred by cashing out my stock.

Thanks in advance!

[Anonymous]

401K loans are not reported to the credit bureaus. You may want to talk to your financial adviser however before taking a 401K loan to ensure there are no other ramifications.

[Platinum25]

401K loans do not report to any CRA, so you're ok.  It will only help you because you will magically have money to pay off your cc's and not have a (debt consolidation) loan on your credit report.

[dlm0820]

just be careful of the tax implications involved and whether you plan on staying at your current job.

If you plan on staying at your job for an extended period of time then you should have no problem.  However, if you leave and can't pay the money back to the plan then the govn't would consider that income to you and you would have to report it at the end of the year.  Since taxes aren't taken out of a 401K loan, you would have to pay taxes on the entire amount of the loan.

I took a loan out of my 401K to pay off some of my bills a couple of years ago and my job screwed me.  I didn't have the money to pay back the loan and had to take it as income in that year.  If you can avoid taking out of your 410K I would highly recommend it.  Even though you are paying yourself back, you are losing interest on the amount that you borrowed.

Good luck you you with whatever you decide.  I know how long of a road it can be to build yourself back up.  I'm currently going down that road myself and I think I can finally see the end of it.