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How much should I pay to student loans to improve credit?

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How much should I pay to student loans to improve credit?

I have 3 loans with a fixed 4.29% interest rate that add up to about $10,500. How much should I pay monthly to make the biggest positive impact on my credit score?
Message 1 of 9
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Valued Contributor

Re: How much should I pay to student loans to improve credit?


@Ashleylafaso wrote:
I have 3 loans with a fixed 4.29% interest rate that add up to about $10,500. How much should I pay monthly to make the biggest positive impact on my credit score?

Not enough information.  It is typically the current balance in relation to the initial balance that is a key factor.  If you have 3 loans then each one will be at a different %.  For the sake of your question, your total amount owed with 3 loans combined is irrelevant.  However, since I can't directly answer your question, your best scores will be when 2 are paid off and 1 left open with less than 9% left on the initial balance.  If the

last loan is your only open loan, your score will drop when it is paid off.

 

Do you have any other open accounts besides these loans?  Credit cards?  Mortgage?  Auto?

 FICO 8
Message 2 of 9
New Visitor

Re: How much should I pay to student loans to improve credit?

No I have no other open accounts but my question is how much should I pay per month. I've only paid $111 towards it so far. They are currently in forbearance.
Direct unsub Stafford loan - $4478.03
Direct sub Stafford loan - $3739.72
Direct unsub Stafford loan - $2239.94
Message 3 of 9
Valued Contributor

Re: How much should I pay to student loans to improve credit?

Ashleylafaso:
I think the question that you are asking is similar to something that I was thinking about for a while: how does utilization of student loans affect your credit score?
The answer is that there student loans are not the area of improvement you'd make the most impact trying to improve. As you have seen from the previous answer, you'd have to get your utilization down pretty far to have an impact. Instead of focusing on how far down you should pay your loans, here is something I think will help you more.
If you don't have any credit cards (revolving credit) your score is going to take a hit and you're passing up a way to earn major points. Not to say you should take on more debt than you can handle; not having credit cards may be best for you. I don't know. It was help be something as little as getting one card, just putting a utility on it and paying it off in full.
However, by not having this area affecting utilization or payment history, it's resting solely on your installment loans. You've got to take them out of forbearance. It will not count as good payments because it won't count as anything. Check your credit score and you'll see what I'm talking about. There great news is that your payments can actually be lower than they are (which did not prevent you from paying more if you choose).
Check out the Income-driven repayment plans. They can have payments as low as $0 and plans like REPAYE and IBR have features where the government may pay a portion to all of your interest that isn't covered by your payments.
The reason I say lower your payments is because if you won't benefit from loan forgiveness the plans provide, if will allow you to benefit by making the minimum payment on all your loans except the one you choose. It's called the snowball method, used to pay off debt. For this one loan you make the minimum payment plus all of the rest of the amount you want to put towards your loans monthly. It's probably going to be one of the unsubsidized loans as they have the fewest interest benefits. If they have the same APR, I would say the one with the highest balance.
This will ask take time and it took me a while to recognize that's okay. If you optimize the rest of your credit report you can get above 700 despite your loans.
Just my experience, I bet others could help you a lot more in the credit score section.
Hope this helps and feel free to ask more questions. 🙂



Message 4 of 9
Frequent Contributor

Re: How much should I pay to student loans to improve credit?

making monthly payments on time while reducing the amount owed on the loans increases your credit score pretty much no matter what.

 

i would also add that lenders for car and home loans care less about the total of your student loans, and more about the total monthly payment you have to make.  i have 90K+ in student loans, but when i bought my house and car, all the lenders cared about was my monthly payment for my student loans.  i use REPAYE, so it's pretty low for me,  and it didn't keep me from getting prime rates on my loans for a 20K car and 250K house (I make about 70K per year).  since i pay off all of my credit cards in full every month, i didn't have any other DTI stuff to worry about. 

 

it's always a unique situation for each individual.  good luck!

 

 

 

800+ for all 3 CRAs.

Took 4 years after rehabbing a bunch of defaulted student loans, but totally worth it.
Message 5 of 9
Valued Contributor

Re: How much should I pay to student loans to improve credit?

The monthly payments do help improve your credit score. For many people student loans are also their oldest account. However, slowly reducing the balance on student loans as installment loans will improved your credit score little to not at all. In fact it wouldn't really matter much if you don't make progress at all or went over 100%, such as on a IDR plan that ends in loan forgiveness.
The reason is the next utilization threshold that you have to get down to from 100% is so low, and it's worth so few points, it's not really worth making a short-term goal imo.
Credit card utilization, late payments, number of inquiries, etc are things you can easily make a short-term goal of improving and make a significant impact score-wise.
The other thing to take into account is that there is more than one type of home loan. Yes, there are loans that will take into account your monthly payment rather your overall dept. In fact, many federal loan servicers have a letter you can easily print out to give to lenders for this purpose. Not all types of mortgages allow you to do this though. You might want to talk to a lender and see what your options are.



Message 6 of 9
Established Member

Re: How much should I pay to student loans to improve credit?

Very sound advice stated by everyone.

 

I will add that if you are going for some kind of federal morgage (USDA or FHA), they will look at your total amount owed and use 1% of that as your monthly payment. It doesnt matter if you pay less via IBR or are in forebearance. 

However, some lenders look at the actual payment amount shown on the credit reports. Or, as mentioned above, a mortgage verification letter from your servicer.

 

I'm looking at having 85K in student loans forgiven in a few years without a tax bomb due to being in public service. No brainer.

 

Speaking of tax bombs, if you are not in public service, the amount forgiven will be counted as income in the year it was forgiven. So prepare for it.


Message 7 of 9
Valued Contributor

Re: How much should I pay to student loans to improve credit?

Actually, for most people on IDR plans without PSLF, their forgiven amount will not count as income, or at least not all of it. This is due to insolvency. Here is an article that explains what it means, examples of how someone could be insolvent (liabilities exceed assets), and briefly touches on the fact that there is a strong possibility that legislation will change before people even begin to get this forgiveness (there is already too much strain on the economy due to student loan payments):
UNDERSTANDING STUDENT LOAN DEBT FORGIVENESS AND INSOLVENCY
https://thecollegeinvestor.com/22725/student-loan-debt-forgiveness-insolvency/



Message 8 of 9
Established Member

Re: How much should I pay to student loans to improve credit?

Thanks for the information Sabii. Will remember this for friends currently looking to get loan forgiveness.

Message 9 of 9
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