How will paying off SL affect my credit?

[Anonymous]

So I took at a federal subsidized loan last month and it got reported and made my score drop 40 points. I don't have to make payments since I'm still in school but was wondering if I have the money would it be better to pay it off because of it will make my credit go up I will but if not I see no reason to pay it off now

[thornback]

Hi and welcome to the forums!

I'm guessing the scores you are referencing are Vantage scores, not FICO?  If so, do you know your FICO scores? 

Is this your first/only installment loan? 

[Anonymous]

Yea it's vantage and it is my first installment loan but I don't have a Rico score as of yet since I only have 4 months of credit history but I think I hit 5 months recently

[thornback]

Ok.  Paying the loan off will cause your FICO scores to be lower than they should be once they are generated when your account age reaches 6 months.  The installment is fulfilling the installment portion of your credit mix so it actually adds points to your FICO. 

Vantage scores differ greatly from FICO in how they weigh various aspects of your credit - but the overwhelming majority of lenders use FICO to make credit decisions, not Vantage.  FICO are the scores with which you should concern yourself. 

Your Vantage scores dropped due to a new account reducing your credit age and the increased debt - but those scores tend to rebound fairly quickly so I wouldn't worry about it.  FICO doesn't score installments in the same manner. 

3 revolving accounts and 1 installment is what is needed for optimal FICO scoring. Keep the installment open for as long as possible. If you want, you can pay it down to less than 9% of the original loan amount to get the best FICO scoring boost - but only do this if it pushes your payments out into the future - you want to make sure advance payments won't shorten the term of the loan. FICO gives a point bonus when loans drop below 9% utilization.  Or, you can simply leave the balance as is and start paying when payments are due - take advantage of your grace period but make sure you pay any interest that may accrue during this time.

[Anonymous]

Ok thanks for this insight it's a subsidized loan so no interest but I have 4 cards, 2 of which are authorized user and others are individual will that make any difference 

[thornback]

Yes, 3 cards for which you are the primary cardholder is optimal.  Your AU accounts, assuming they aren't flagged by the algorithm and thus, discounted, can help with age and add some points for that - but calculating utilization and number of cards with a balance is where the difference lies (this gets really deep into FICO scoring quirks so I'm not going to boggle your mind with all that right now - but the more you read around here, the more you'll learn). 

I'd suggest waiting til you generate FICO scores before looking into adding a 3rd primary card based on where you stand at that point.