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Effects of Loan Utilization on Scores

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Effects of Loan Utilization on Scores

I was having a conversation in another thread on the effect of loan utilization, particularly in a case where the loan is a student loan that has been in deferment a long time and now the balance is 150% or more of the original loan. What effect does a loan such as this have one your score? Is it just considered still 100% utilization or do you take hits to your scores as it grows? So is 100% better than 128.9 %, etc? Or does once it hit a 100% there are no more scoring penalties for increasing utilization.

 

I was at -69% on mine a while back and have since consolidated which closed the old accounts with an open date of 2006 and opened 2 new ones at the same time. The balances are now the same as before, but the two new loans are still at 100%. I was getting some baddies removed and some other new accounts all at the same time, so I can't tell from scores changes if any of this mattered or not.

 

I'm just curious as to what type of effect on scores you may or may not get from this type of situation. 

Started Rebuild 4/2018: EX 616| TU 604| EQ 621

Current 09/17/19:


Goal Score: 750+
Message 1 of 9
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Valued Contributor

Re: Effects of Loan Utilization on Scores

OP, my first thought was that anything greater than 100% might not have more of a negative effect. But I wasn't completely sure. My research did not find much, but I did come across this old thread. Moderator "Revelate" gave a good answer. Check it out: https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Student-loan-balance-higher-than-origina...
                               

Total Credit: $240,100Credit Utilization: 1%AAoA: 5 years, 7 monthsInstallments: Car Lease, Marcus LoanNegatives: 0

LOWES-35k | BOA-32.5k | AMEX-30k | DISC-27.1k | ALLIANT-25k | NFCU-25k | BARC-15k | BBUY-12k | CHASE-10k | WAL-10k | CITI-9.7k | PENFED-9.7k


Message 2 of 9
Super Contributor

Re: Effects of Loan Utilization on Scores

From a practical perspective this doesn't matter to you, right?  I am assuming that you aren't expecting your installment utilization to go up from 100%.  Rather, you are probably expecting it to go down over the next several months.  Correct me if I am wrong.

 

You don't mention whether you have other open loans besides the student loans.  Are the SLs your only loans?

Message 3 of 9
Established Contributor

Re: Effects of Loan Utilization on Scores


@CreditGuyInDixie wrote:

From a practical perspective this doesn't matter to you, right?  I am assuming that you aren't expecting your installment utilization to go up from 100%.  Rather, you are probably expecting it to go down over the next several months.  Correct me if I am wrong.

 

You don't mention whether you have other open loans besides the student loans.  Are the SLs your only loans?


Correct, at this point this is more of a curiosity thing for me personally, but I do know a lot of people have this issue. My DW is one so I’m curious about what effect this ma be having on her scores. I do have a mortgage but that is my only loan besides these 2 student loans.

Started Rebuild 4/2018: EX 616| TU 604| EQ 621

Current 09/17/19:


Goal Score: 750+
Message 4 of 9
Super Contributor

Re: Effects of Loan Utilization on Scores

If your mortgage is close to 100%, then you are getting almost no scoring points from FICO 8.  If you have an older mortgage that has been paid down to under 68%, that might give you some scoring boost.  Very little testing has been done on hybrid profiles (one with a somewhat paid-down mortgage loan but also some non-mortgage loans).  It does appear that if a person has only an older partly paid down mortgage he gets a boost -- and we know how to get the boost when a person has no loans or exactly one.  Hybrid profiles are more complicated animals.

 

As Revelate says, however, from a practical angle just make your loan decisions from the perspective from what makes the most financial sense.

Message 5 of 9
Super Contributor

Re: Effects of Loan Utilization on Scores


@dynamicvb wrote:

I was having a conversation in another thread on the effect of loan utilization, particularly in a case where the loan is a student loan that has been in deferment a long time and now the balance is 150% or more of the original loan. What effect does a loan such as this have one your score? Is it just considered still 100% utilization or do you take hits to your scores as it grows? So is 100% better than 128.9 %, etc? Or does once it hit a 100% there are no more scoring penalties for increasing utilization.

 

I was at -69% on mine a while back and have since consolidated which closed the old accounts with an open date of 2006 and opened 2 new ones at the same time. The balances are now the same as before, but the two new loans are still at 100%. I was getting some baddies removed and some other new accounts all at the same time, so I can't tell from scores changes if any of this mattered or not.

 

I'm just curious as to what type of effect on scores you may or may not get from this type of situation. 


Maybe I am missing something.

If the loan has been in deferment, then it should not have been adding interest cost on to the loan balance. Am I incorrect in this?

 

If the loan started with 100% and then more loans were added to it, then the total loan amount, the "loan limit" would have also been increased. Similar situation, not interest added but rather additional / revised loan amounts added to the original loan limit.

 

If the loan is adding interest during deferment, that added 50% is a whopper of interest accrual.

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
Message 6 of 9
Frequent Contributor

Re: Effects of Loan Utilization on Scores


@NRB525 wrote:

@dynamicvb wrote:

I was having a conversation in another thread on the effect of loan utilization, particularly in a case where the loan is a student loan that has been in deferment a long time and now the balance is 150% or more of the original loan. What effect does a loan such as this have one your score? Is it just considered still 100% utilization or do you take hits to your scores as it grows? So is 100% better than 128.9 %, etc? Or does once it hit a 100% there are no more scoring penalties for increasing utilization.

 

I was at -69% on mine a while back and have since consolidated which closed the old accounts with an open date of 2006 and opened 2 new ones at the same time. The balances are now the same as before, but the two new loans are still at 100%. I was getting some baddies removed and some other new accounts all at the same time, so I can't tell from scores changes if any of this mattered or not.

 

I'm just curious as to what type of effect on scores you may or may not get from this type of situation. 


Maybe I am missing something.

If the loan has been in deferment, then it should not have been adding interest cost on to the loan balance. Am I incorrect in this?

 

If the loan started with 100% and then more loans were added to it, then the total loan amount, the "loan limit" would have also been increased. Similar situation, not interest added but rather additional / revised loan amounts added to the original loan limit.

 

If the loan is adding interest during deferment, that added 50% is a whopper of interest accrual.


Assuming these are federal student loans, it will depend on whether they are subsidized or unsubsidized loans. On subsidized loans, the interest is paid for (i.e. subsidized) by the government and therefore, do not accrue interest. Unsubsidized loans accrue interest while in deferment.

Message 7 of 9
Established Contributor

Re: Effects of Loan Utilization on Scores


@beutiful5678 wrote:

@NRB525 wrote:

@dynamicvb wrote:

I was having a conversation in another thread on the effect of loan utilization, particularly in a case where the loan is a student loan that has been in deferment a long time and now the balance is 150% or more of the original loan. What effect does a loan such as this have one your score? Is it just considered still 100% utilization or do you take hits to your scores as it grows? So is 100% better than 128.9 %, etc? Or does once it hit a 100% there are no more scoring penalties for increasing utilization.

 

I was at -69% on mine a while back and have since consolidated which closed the old accounts with an open date of 2006 and opened 2 new ones at the same time. The balances are now the same as before, but the two new loans are still at 100%. I was getting some baddies removed and some other new accounts all at the same time, so I can't tell from scores changes if any of this mattered or not.

 

I'm just curious as to what type of effect on scores you may or may not get from this type of situation. 


Maybe I am missing something.

If the loan has been in deferment, then it should not have been adding interest cost on to the loan balance. Am I incorrect in this?

 

If the loan started with 100% and then more loans were added to it, then the total loan amount, the "loan limit" would have also been increased. Similar situation, not interest added but rather additional / revised loan amounts added to the original loan limit.

 

If the loan is adding interest during deferment, that added 50% is a whopper of interest accrual.


Assuming these are federal student loans, it will depend on whether they are subsidized or unsubsidized loans. On subsidized loans, the interest is paid for (i.e. subsidized) by the government and therefore, do not accrue interest. Unsubsidized loans accrue interest while in deferment.


Thanks, I did not know that only the unsub grows a balance. The balances do grow fairly rapidly even with just one. Most people get combinations and they grow. I’ve read multiple in this forum have this situation where a SL balance is double or so the original. First thing interest should have been paid. Too late for that. I’m just wondering what type of effect this may have to scores and I can’t imagine there is not a factor that dings you right out or put you in another bucket. Someone who had a debt but kept it deferred for 10 years. The algorithm would have to take that into account somewhere for some scoring factor.

Started Rebuild 4/2018: EX 616| TU 604| EQ 621

Current 09/17/19:


Goal Score: 750+
Message 8 of 9
Established Contributor

Re: Effects of Loan Utilization on Scores

My student loans were unsubsidized and accrued interest. They were from 2011 and I never paid them until being rehabbed a few years ago. I now owe almost 3x the original amount.

I’m probably never finding that garden everyone keeps talking about.



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