topic Re: FICO Simulator and paying down student loans in Understanding FICO® Scoring

FICO Simulator and paying down student loans

mster — Sat, 02 Jan 2016 19:37:07 GMT

The FICO score simulator is telling me that paying ~$2000 towards my student loans will boost my scores across the 3x CRAs by around 10 points each. None of these are private loans. My question is if you have 2x student loan groups reporting individually (2x tradelines) would a simulated credit score boost from paying down the total balance be coming primarily from reduction of the total student loan burden *or* for from reducing the % owed against the original loan balance on the individual related tradelines?

That is to say that if someone had 2x student loan tradelines that were reporting balances at (1) 80% and (2) 90% of the original loan amounts would the largest potential FICO benefit come from first focusing on paying down tradeline (2) to 80% or lower?

Re: FICO Simulator and paying down student loans

bdhu2001 — Sun, 03 Jan 2016 16:23:38 GMT

@mster wrote:
The FICO score simulator is telling me that paying ~$2000 towards my student loans will boost my scores across the 3x CRAs by around 10 points each. None of these are private loans. My question is if you have 2x student loan groups reporting individually (2x tradelines) would a simulated credit score boost from paying down the total balance be coming primarily from reduction of the total student loan burden *or* for from reducing the % owed against the original loan balance on the individual related tradelines?

That is to say that if someone had 2x student loan tradelines that were reporting balances at (1) 80% and (2) 90% of the original loan amounts would the largest potential FICO benefit come from first focusing on paying down tradeline (2) to 80% or lower?

First you need to pin down the CBA and play with the simulator a little further to see what step to take. Have you moved the slide to the left to see the lowest amount needed to get the boost. Also the reports that are pulled usually show different balances than your current actual balance.

When I had two student loans, I could tell by the amount suggested that I needed to pay off the lowest balance. In addition, I got most of the points just by paying $314 of the 1K that was recommended.

If you can't tell by the amounts listed, then your idea of getting each loan below 80% is a good strategy. If you can move forward to get them below 80% and then pay off one by one, it's even better.

Re: FICO Simulator and paying down student loans

StartingOver10 — Sun, 03 Jan 2016 16:42:11 GMT

Excellent question!

I don't know the answer, but there is a very interesting thread by Revelate that discusses the impact of paying down your installment loans to below a particular threshhold. Here is the thread and it may help you answer the question you pose: http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/td-p/4055989

Naturally the answer you received above is a great place to start!

Re: FICO Simulator and paying down student loans

mster — Sun, 03 Jan 2016 17:06:46 GMT

Yeah -1 on the slider somehow gets me +10 across 2x CRAs (+5 each). -2000 gets me +20 across 2x CRAs (+10 each), -5000 gets me +35 across 3x CRAs (+15, +15, +5) and -15000 gets me +65 across 3x CRAs (+25, +25, +15).

Paying the balance on loan (1) down to <90% is doable since the original balance of that loan is smaller (and the interest rate is higher). Paying the balance on loan (2) down to <90% would involve throwing significantly more cash at it since the original balance of that loan is larger. I just paid loan (1) down to <90% and will see what happens. Then I'll try paying down loand (1) to 80%. Then I'll try paying down loan (2) a bit more.

Everyone says student loans don't hurt your score that much, but the slider is telling me that paying my student loans all the way down to <30% of original or <10% of original could result in boosts across my CRAs as high as +40 points each !?!

Re: FICO Simulator and paying down student loans

mster — Sun, 03 Jan 2016 17:29:10 GMT

@StartingOver10 thanks for sharing that post!

Re: FICO Simulator and paying down student loans

bdhu2001 — Sun, 03 Jan 2016 18:17:44 GMT

@mster wrote:
Yeah -1 on the slider somehow gets me +10 across 2x CRAs (+5 each). -2000 gets me +20 across 2x CRAs (+10 each), -5000 gets me +35 across 3x CRAs (+15, +15, +5) and -15000 gets me +65 across 3x CRAs (+25, +25, +15).

Paying the balance on loan (1) down to <90% is doable since the original balance of that loan is smaller (and the interest rate is higher). Paying the balance on loan (2) down to <90% would involve throwing significantly more cash at it since the original balance of that loan is larger. I just paid loan (1) down to <90% and will see what happens. Then I'll try paying down loand (1) to 80%. Then I'll try paying down loan (2) a bit more.

Everyone says student loans don't hurt your score that much, but the slider is telling me that paying my student loans all the way down to <30% of original or <10% of original could result in boosts across my CRAs as high as +40 points each !?!

I think a more accurate statement is that depending upon where you are with your revolving balances, you get more bang for your buck by paying on your RV. Once your RV balances are down (usually below 20%) then you start getting more bang for paying student loans.

Do you need a better score for a particular purchase, or do you have time? I think your strategy is excellent. I previously reviewed percentiles for installment loans, but I don't recall the break offs. I do recall less than 80% being a magic number. Other than that, your usual 90, 80, 50. Your keeping us posted will really help. Thank you.

Re: FICO Simulator and paying down student loans

mster — Sun, 03 Jan 2016 18:27:28 GMT

Already got my total RV util sitting pretty at 1-2% or I wouldn't be looking for other angles

My personal situation is that I want to get more comfortably over 760 before mortgage apps. I've got $$$ I can put towards paying down student loans, but I need to get a better sense of the best way to apply these funds strategically. Like should I go for < 80% on the smaller installment loan tradelines where this is easier to achieve before grinding the larger installment loan tradelines down to <80% (or even <90%)? The biggest question is whether it is the individual or aggregate installment loan balances (as a percent of the original) that are being weighted by FICO here.

Re: FICO Simulator and paying down student loans

bdhu2001 — Sun, 03 Jan 2016 18:47:05 GMT

@mster wrote:
Already got my total RV util sitting pretty at 1-2% or I wouldn't be looking for other angles

My personal situation is that I want to get more comfortably over 760 before mortgage apps. I've got $$$ I can put towards paying down student loans, but I need to get a better sense of the best way to apply these funds strategically. Like should I go for < 80% on the smaller installment loan tradelines where this is easier to achieve before grinding the larger installment loan tradelines down to <80% (or even <90%)? The biggest question is whether it is the individual or aggregate installment loan balances (as a percent of the original) that are being weighted by FICO here.

Based on my experience, I think it's aggregate. But the strategy of getting everything below 80% and then focus on paying off, I believe to be your best decision. If your mid-score mortgage is already above 760, you're in very good shape. Most mortgage lenders only require 740 for the best score. Very few require 760.

Re: FICO Simulator and paying down student loans

StartingOver10 — Thu, 11 Feb 2016 12:20:06 GMT

^^^That's right. You get the best interest rates for mortgages @740 and above but you get the best PMI rates at 760 and above. If your mortgage isn't going to have PMI then it isn't something you need to worry about.

Re: FICO Simulator and paying down student loans

Anonymous — Thu, 11 Feb 2016 16:12:53 GMT

Glad I found this thread. Just paid $200 to my differed student loan for 38k. According to CCT it gives me 5 points. My revolving balances are in check so now I am going after my student loan.

Re: FICO Simulator and paying down student loans

Anonymous — Sun, 05 Nov 2017 23:24:54 GMT

I have a similar situation. The FICO Simulator tells me that if I pay off my student loans I would get a 25 point boost with EQ and 30 points on EX and TU. My issue is, those two trade lines are my only installment accounts and they are also my oldest. Would that not actually hurt my score and lower my AAofA? I am working on getting my scores up for a mortgage, however if I pay my student loans off, it would nearly wipe out my savings. And I’m not even sure how accurate the simulator is.

Re: FICO Simulator and paying down student loans

Anonymous — Mon, 06 Nov 2017 01:37:50 GMT

Hello Sassy. If you pay off your student loans, that will not affect your AAoA. FICO considers both closed and open accounts in computing one's AAoA, therefore an account going from open to closed has no effect -- whether we are talking about immediate effect, or even an effect 7-8 years down the road. Eventually the closed accounts will fall off your reports in ten years, but that is way way down the road.

That said, paying off all your open installment accounts will indeed harm your FICO 8 score, though by how much we can't guess unless you tell us the original amount of the loan and the current amount owed (for each loan).

As you can see, simulators often given flat out false information that can lead people to attempt expensive strategies that harm their score. Glad you are asking us first.

PS. Mortgage scores are hurt less by installment loan payoffs, but they are certainly not helped.

Re: FICO Simulator and paying down student loans

Anonymous — Mon, 06 Nov 2017 23:43:18 GMT

Hi, thank you for responding. I am glad I asked first also. One of my student loans was $3,224.22 and the other was $4,381.92. The current balances are $2,567.40 and $3,330.82. I was only able to start paying on them May of 2016 and I have a few lates due to not realizing my forbearance was over. No lates since I’ve been making payments. My payment combined for both is $74.57. I’m not due to be paid off until April of 2026.

Re: FICO Simulator and paying down student loans

Anonymous — Tue, 07 Nov 2017 03:37:20 GMT

Hi Sassy. When is your best guess as to when you would buy a house?

Are those student loan lates the only derogs that you have on your report? No other lates, collections, chargeoffs, liens, etc?

The best thing you could be do to prepare for your home purchase is getting those late payment marks on your report removed. That is not a slam dunk, but you have a shot at being able to convince your lender to do that. Keep making perfect payments and keep the loans open so that you have some leverage. People like Brutal Body Shots and many others know a lot about how to do that.

Re: FICO Simulator and paying down student loans

Anonymous — Mon, 13 Nov 2017 01:33:02 GMT

Hi, sorry for the late response. My student loans are the only lates I can see, however I was told by a lender awhile back that I had a charge off but never responded when I asked from who. I do not see it on any of my credit reports. I’m hoping to buy a condo within the next few months. My issue is finding something in my price range which has shown to be a huge challenge due to the prices of homes in south Florida. I will definitely try to find out about any other items but I can’t think of anything within the last 7 years except for the student loans. I am hoping to see my score move up soon. Lately I only gain and lose a few points back and forth. It seems that when I pay my credit cards off, I lose points and when I leave a small balance, I gain. It is definitely confusing but I will definitely keep making early and in time payments. I’ve worked too hard the last couple of years to ever go backwards. I appreciate your feedback and I am glad I didn’t jump to pay off my student loans as the simulator suggested.