topic Re: Keeping Student Loans Around in General Credit Topics

Keeping Student Loans Around

jmcherr — Wed, 04 Sep 2019 14:36:56 GMT

Hi, first time poster

I was wondering if I could get a fresh take on the idea about keeping my student loans open at a low balance. Now I was reading a post (Should I bother keeping student loan accounts open?) which also lead me to the Share Secure Technique. However I understand everyone has different credit profiles so I was hoping to get some advice on my situation.

A little information about me:

I really started taking a good look into my credit reports and scores about a year ago and have found this site extremely helpful.

I have 3 credit cards, ages 11 months, 5 months, and 1 month (if AMEX ever reports it)

1 car loan 2 years 8 months and I plan to pay it off this month

3 student loans which are my oldest open accounts 8 years, 8 years, 7 years

2 closed paid-in-full student loans that were charged off and should drop off my report in the next year.

I keep my credit card utilization low between 1-10%

I have the ability to pay off my student loans in the next 3-4 months, and started to wonder if it would be a good idea to keep two of them open at a lower balance maybe a couple hundred dollars each. Over the course of 6 years I would pay about $50 in interest (less then $1/month). I also understand that sometimes if the balance gets to low the creditor might right it off. I don't know how to find out if this will happen or not, but if it does I could look further into Share Secure Technique.

I believe and correct me if I'm wrong this would benefit me by having 2 open in good standing installment loans (with low balances), and also could help my credit age in the longer run. If I close them now they will continue to age for 10 years however if I keep them open they could potentially age for 16 years.

Now my goal is to buy a house but its still a bit down the line 3-4 years I plan on only getting 1 more credit card in that time and letting all HP drop of my report.

So my question is should I keep them open will having open installment loans, with low balances help my credit when applying for a mortgage, or should I close them now possible take a hit on my score now and probably bounce back by the time I'm ready for the mortgage?

Thanks in advanced any and all advice is appreciated.

Re: Keeping Student Loans Around

calyx — Wed, 04 Sep 2019 14:58:35 GMT

This is what I'm doing with my student loans because whatever I pay goes towards the principle after the interest is wiped out and it's paid ahead.

I've paid off >30% of my CL in less than a year, and my current "next payment due" date is 11/2021. I plan on paying it down to approx $100 and let it ride. I figure, even though it's a little higher than Navy's 2.25% SSL at 3.6%, that's still low enough to be "worth it" for me to keep that loan on record as long as possible (for the full 10years if they'll let me, hah). Once I have that paid down, I'll throw my payments at my autoloan and get that paid down (or off, really) as soon as possible, and then I can ride out the student loan for as long as possible.

The big bump reportedly comes in when your loan is less than 8.9% aggregate, so I'm hoping that since my original student loan amount was sizable, it will not only help me keep a long open installment loan, but help buffer any other loans (like my auto loan now, or any other loan that might happen in the future).

Re: Keeping Student Loans Around

Remedios — Wed, 04 Sep 2019 15:11:25 GMT

Hi @jmcherr and welcome to the forums

If you decide to do this, you only need one loan for score bump. Unless you're trying to keep both open aging wise, you can safely pay off two, and leave third one.

Re: Keeping Student Loans Around

jmcherr — Wed, 04 Sep 2019 16:18:32 GMT

Okay I'll use that 8.9% as guide line to how much to pay off. I will also be paid ahead with this plan, however I think I'm going to make monthly payments just so I don't forget about it.

Re: Keeping Student Loans Around

jmcherr — Wed, 04 Sep 2019 16:24:55 GMT

I was going to keep both for ageing purposes. The biggest reason I am getting ride of the 3rd is the interest rate. All three are from the same company so it wont be a hassle to keep two.

Also this:

"The big bump reportedly comes in when your loan is less than 8.9% aggregate, so I'm hoping that since my original student loan amount was sizable, it will not only help me keep a long open installment loan, but help buffer any other loans (like my auto loan now, or any other loan that might happen in the future)."

Having both still opened might serve that purpose for me if I do get any other loans, my original balance on these two were not that big but together they are a little bigger.

Re: Keeping Student Loans Around

Remedios — Wed, 04 Sep 2019 16:33:23 GMT

If you get other loans, such as a car loan, your scoring bump will be gone because you'll have a brand new fully utilized loan

This only works while it's your only loan, with utilization under 9%

Re: Keeping Student Loans Around

jmcherr — Wed, 04 Sep 2019 16:55:41 GMT

Yes

So my understanding is, and let's not consider a car loan because that's not something I plan on doing, let's think on a smaller scale. If I had to get a personal loan or did something impulsive like finance a motorcycle (not planing on either). Then wouldn't I get that bump back faster as I pay that down because these two loans would already be reporting under that 9% and it would factor in all three as my total debt? Or am I thinking of this wrong? Again I'm not in the position to do either as I'm trying to get my score up to buy a house, just out of curiosity.

Re: Keeping Student Loans Around

calyx — Wed, 04 Sep 2019 18:13:39 GMT

@jmcherr wrote:
Yes
So my understanding is, and let's not consider a car loan because that's not something I plan on doing, let's think on a smaller scale. If I had to get a personal loan or did something impulsive like finance a motorcycle (not planing on either). Then wouldn't I get that bump back faster as I pay that down because these two loans would already be reporting under that 9% and it would factor in all three as my total debt? Or am I thinking of this wrong? Again I'm not in the position to do either as I'm trying to get my score up to buy a house, just out of curiosity.

Yes, what you're thinking of is the aggregate, and that needs to be under 8.9%, so you're thinking right.
Mortgages can be treated differently (from my understanding), but since I don't have one, I haven't looked into it.

Re: Keeping Student Loans Around

Remedios — Wed, 04 Sep 2019 18:20:27 GMT

@jmcherr wrote:
Yes
So my understanding is, and let's not consider a car loan because that's not something I plan on doing, let's think on a smaller scale. If I had to get a personal loan or did something impulsive like finance a motorcycle (not planing on either). Then wouldn't I get that bump back faster as I pay that down because these two loans would already be reporting under that 9% and it would factor in all three as my total debt? Or am I thinking of this wrong? Again I'm not in the position to do either as I'm trying to get my score up to buy a house, just out of curiosity.

If you get another loan, without paying new loan under 9%, bump is gone.

Re: Keeping Student Loans Around

calyx — Wed, 04 Sep 2019 19:07:28 GMT

^+1

Just to clarify, you WOULD need to pay down the loan immediately, but the math will depend.
I plan on keeping my student loans at ~100, which is actually about 0.3% utilization.

If I take out a new loan... say for 10k, I will lose my point bump for the <8.9% because my new loan totals would bring my utilization up to 22% (using approximate real world numbers).

So I'd have to pay the new loan down to get that util back to under the threshhold, which could be quicker (depending on what I have to pay), or not. Chances are if you need the loan, you don't have the extra money already. Anyway, a lot of this is not worth the maths, but having a nice old installment loan tradeline at <9% is a bonus that takes no mental gymnastics (full disclosure: I would not SSL, but since I already have the SL, I'll take advantage of it).

Re: Keeping Student Loans Around

Anonymous — Thu, 05 Sep 2019 03:28:31 GMT

Are the loans federal or private?

Re: Keeping Student Loans Around

jmcherr — Thu, 05 Sep 2019 11:15:15 GMT

@Anonymous wrote:
Are the loans federal or private?

They are Federal, does that make any difference?

Re: Keeping Student Loans Around

Anonymous — Thu, 05 Sep 2019 12:41:42 GMT

Just in terms of getting an accurate answer. Federal loans are one thing but a private student loan... The devil can be in the details. You might make plans to do something reasonable and they would get you in the fineprint.
There was actually an article about this, paying down you loans steadily but not too quickly. I can definitely see the benefit if it. Just keep in mind that servicers Often do wrong and if you don't keep a close eye on it you could easily end up with the loan past 30 or 60 days late because they don't usually report them. Good luck.

Re: Keeping Student Loans Around

jmcherr — Thu, 05 Sep 2019 15:17:00 GMT

Yeah the possibility of ending up with a late payment does scare me a bit. That's why even though I'd be paid ahead I was thinking of making monthly payments, like a total of ten dollars as long as they let me make that low of payments. That way I don't forget about it all together and can also monitor anything wonky going on.

Re: Keeping Student Loans Around

Anonymous — Thu, 05 Sep 2019 16:11:15 GMT

That's sounds like a better idea. There either thing would be to monitor the distribution of that money. You mentioned you have multiple loans. @Calyx could better direct you on how to make sure the payment goes to each loan and not just one (if it's necessary).

Re: Keeping Student Loans Around

calyx — Thu, 05 Sep 2019 17:49:19 GMT

Definitely *definitely* keep a close eye on things if you do go for it.
I think I give @Sabii minor attacks when I start thinking/posting about playing games with my student loans because not only do we both know how horrible they are, but I've been burned before (so it's especially crazy for me to try to do that again).

I will say, that I'm willing to do the "pay it down to almost nothing" scheme because I've been pretty obsessive about watching what my loan is doing while I'm paying it down, all the way to the little details, just to be sure nothing horrible happens. They are NOT reporting correctly (because I'm paid ahead, they're reporting to CRAs as "deferred," which... they're not - and NSLDS is correct on the pay ahead), and there are all kinds of quibbly little things happening that do not negatively impact my score or my financial health (which is more important than FICO), so I'm just keeping an eye on them and keeping that data noted. At the end of the day, I don't want to pay any interest I don't have to, and my SL's are my highest interest loan, so if I paid it down to, say $100 and something hinky happens, I'll just pay it off and move along to my next loan.

Which is to say - playing games with servicers can backfire - always have an exit plan.

And yes, you can pay off individual loans, even if you *normally* pay one lump sum that the servicer distributes. Some of the servicers even allow you to direct where you want payments to go on the payment site itself, which is a nice option if you want to work on one loan at a time to see how it goes (if your servicer has this option - otherwise it's going to be the CSR for you).

Re: Keeping Student Loans Around

SouthJamaica — Thu, 05 Sep 2019 22:56:07 GMT

@jmcherr wrote:
Hi, first time poster

I was wondering if I could get a fresh take on the idea about keeping my student loans open at a low balance. Now I was reading a post (Should I bother keeping student loan accounts open?) which also lead me to the Share Secure Technique. However I understand everyone has different credit profiles so I was hoping to get some advice on my situation.

A little information about me:
I really started taking a good look into my credit reports and scores about a year ago and have found this site extremely helpful.
I have 3 credit cards, ages 11 months, 5 months, and 1 month (if AMEX ever reports it)
1 car loan 2 years 8 months and I plan to pay it off this month
3 student loans which are my oldest open accounts 8 years, 8 years, 7 years
2 closed paid-in-full student loans that were charged off and should drop off my report in the next year.
I keep my credit card utilization low between 1-10%

I have the ability to pay off my student loans in the next 3-4 months, and started to wonder if it would be a good idea to keep two of them open at a lower balance maybe a couple hundred dollars each. Over the course of 6 years I would pay about $50 in interest (less then $1/month). I also understand that sometimes if the balance gets to low the creditor might right it off. I don't know how to find out if this will happen or not, but if it does I could look further into Share Secure Technique.

I believe and correct me if I'm wrong this would benefit me by having 2 open in good standing installment loans (with low balances), and also could help my credit age in the longer run. If I close them now they will continue to age for 10 years however if I keep them open they could potentially age for 16 years.

Now my goal is to buy a house but its still a bit down the line 3-4 years I plan on only getting 1 more credit card in that time and letting all HP drop of my report.

So my question is should I keep them open will having open installment loans, with low balances help my credit when applying for a mortgage, or should I close them now possible take a hit on my score now and probably bounce back by the time I'm ready for the mortgage?

Thanks in advanced any and all advice is appreciated.

It depends on the percentages. FICO 8 scores reward you when your overall installment utilization percentage is at 9% or lower. If your aggregate will stay at 9% or lower, you can drop all but one of your loans without consequence.