About how much would paying off my loans hurt my FICO score?

[Anonymous]

So, I have three student loans. One Sallie Mae loan at $53, and two federal loans at $350 each.Both of them are pretty low in relativity to the initial amount, so I’m getting a small FICO boost for that. My scores range from 745-760 between the three bureaus.

I was going to leave small balances on each loan because they are my three oldest tradelines, each at 2 1/2 years old, and to keep a good credit mix. However, I am beginning to consider just paying them off for the peace of mind of being debt-free and not having them hanging over my head anymore.

My question is, should I pay them off, how grave of a penalty would I incur to my credit score for “lack of recent installment history”? Also, could it impact my ability to be approved for credit cards in the future, in spite of my couple years of revolving credit history? Thanks in advance!

[DollyLama]

Around 30 points across the board when you pay off your only and last installment.

You could go ahead and pay off Sallie Mae, and one other, but leave one $350 loan. However, that time will eventually come.

[Anonymous]

When you say that your loan balances are "pretty low" compared to the original loan amount, are all three under 8.99%?

Are any of these loans your oldest open account?  (Older than a credit card, say.)

[Anonymous]

I agree, pay off 2 out of 3 of them.  There's no additional "credit mix" benefit in having more than 1 of them open.  I would keep open whichever one you feel could be kept open the longest (if that's even a consideration).  Keeping just 1 of them open for as long as possible with a low balance relative to the original amount will allow you to continue to receive the credit mix score boost associated with an open installment loan.

[CH-7-Mission-Accomplished]

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@Anonymous wrote:
So, I have three student loans. One Sallie Mae loan at $53, and two federal loans at $350 each.Both of them are pretty low in relativity to the initial amount, so I’m getting a small FICO boost for that. My scores range from 745-760 between the three bureaus.

I was going to leave small balances on each loan because they are my three oldest tradelines, each at 2 1/2 years old, and to keep a good credit mix. However, I am beginning to consider just paying them off for the peace of mind of being debt-free and not having them hanging over my head anymore.

My question is, should I pay them off, how grave of a penalty would I incur to my credit score for “lack of recent installment history”? Also, could it impact my ability to be approved for credit cards in the future, in spite of my couple years of revolving credit history? Thanks in advance!

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My best friend had been working hard to get his FICO score up to near 850 (around 845) ane he paid off his car loan (only installment), and his score dropped 30 points.

[SouthJamaica]

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@Anonymous wrote:
So, I have three student loans. One Sallie Mae loan at $53, and two federal loans at $350 each.Both of them are pretty low in relativity to the initial amount, so I’m getting a small FICO boost for that. My scores range from 745-760 between the three bureaus.

I was going to leave small balances on each loan because they are my three oldest tradelines, each at 2 1/2 years old, and to keep a good credit mix. However, I am beginning to consider just paying them off for the peace of mind of being debt-free and not having them hanging over my head anymore.

My question is, should I pay them off, how grave of a penalty would I incur to my credit score for “lack of recent installment history”? Also, could it impact my ability to be approved for credit cards in the future, in spite of my couple years of revolving credit history? Thanks in advance!

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Your FICO 8 score would take a big hit. But your mortgage scores won't. In my case TU FICO 4 dropped a little, and EX FICO 2 and EQ FICO 5 didn't budge at all.

[Thomas_Thumb]

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@CH-7-Mission-Accomplished wrote:

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@Anonymous wrote:
So, I have three student loans. One Sallie Mae loan at $53, and two federal loans at $350 each.Both of them are pretty low in relativity to the initial amount, so I’m getting a small FICO boost for that. My scores range from 745-760 between the three bureaus.

I was going to leave small balances on each loan because they are my three oldest tradelines, each at 2 1/2 years old, and to keep a good credit mix. However, I am beginning to consider just paying them off for the peace of mind of being debt-free and not having them hanging over my head anymore.

My question is, should I pay them off, how grave of a penalty would I incur to my credit score for “lack of recent installment history”? Also, could it impact my ability to be approved for credit cards in the future, in spite of my couple years of revolving credit history? Thanks in advance!

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My best friend had been working hard to get his FICO score up to near 850 (around 845) ane he paid off his car loan (only installment), and his score dropped 30 points.

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Thanks for the data point. Another example showing the typical 30 point Fico 8 score drop when closing a "utilization optimized" installment loan when that loan is the last one open. As SJ mentioned, closing the last open loan on the older Fico "mortgage" models is a non event.

[Anonymous]

Great DPs guys, thanks for the help! I think I’m going to pay off the Sallie Mae loan and one of the federal loans, and then leave about $50 on the last loan until the repayment term is over. I definitely can’t afford a 30 point hit with where I’m at now.

[Anonymous]

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@Anonymous wrote:
Great DPs guys, thanks for the help! I think I’m going to pay off the Sallie Mae loan and one of the federal loans, and then leave about $50 on the last loan until the repayment term is over. I definitely can’t afford a 30 point hit with where I’m at now.

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Before you pay off two of the loans, be sure you clarify with the loan handler for the remaining loan how it handles paying the loan down but not off.  What you want is for the due date for the next payment to be pushed way out into the future.  The best way to figure this out is to test it (rather than asking a customer service rep) -- happy to explain more what testing it would involve if you like.

Your $50 balance idea is probably fine -- unless the original loan amount was large (e.g. $11,000).  In that case you'd be paying the loan down to < 0.5% of the original amount.  Some people have reported having their loans closed prematurely by the lender when the balance is ultratiny (compared to its original amount) or if the balance is under $20.  Either can cause the handler to judge that it is making almost no interest and the overhead for it to maintain the loan is no longer worth it.