How student loans affect FICO

[ChemE_Bear]

I have student loans that are listed as closed accounts due to being in the deferment period (graduated in December).  I am have been making small payments prior to gaining employment to keep the interest down as they were unsubsidized loans that accrued interest while I was still in school.  I was offered a job last week (yay!) so my plan is to start aggressively paying them down.   Currently, I have $26K in student loans.  My questions are:  Once the loans are paid off and closed, are they still taken into account when calculating my average credit age (i.e. do they continue to age after being paid off?).  Once they are closed are they not included in my credit mix factor? Currently, Experian says one of the factors that is negatively affecting my credit is a high balance on non-mortgage loans... which I assume are the student loans despite them being closed accounts and my only other non-mortgage auto loan is 71% paid off (also will this loan remain and positively affect credit age after being paid in full?).  How do you maintain a good credit mix if you pay off all of your loans?

[jamie123]

Well...First the bad news...

Student loans accrue interest so when they first appear on your reports they might look something like this:

Amout borrowed: $5000 Current balance: $5650

Yes, that accrued interest puts the loan underwater and it will be a drag on your scores until the current balance gets under 100% of the amount borrowed.

All positive accounts that become paid in full and closed stay on your reports for up to 10 years from the close date but could fall off earlier. All accounts that contain negative information will fall off your reports 7 years from the close date or first occurrence of the negative.

Account mix in most real FICO scores include both open and closed accounts for credit mix. The FAKO scores usually use only open accounts. You really shouldn't worry about credit mix too much because it will eventually take care of itself. You can always boost it with a SSL if needed.

Average Age of Accounts (AAoA) in real FICO scores uses the age of both open and closed accounts.

If you are just starting your credit journey plan on getting plenty of credit cards if possible. Credit cards are the foundation of high credit scores that will stay with you for life. You should plan to have 8 quality credit cards IMHO.

[ChemE_Bear]

OK, thanks for the information.  It won't be an issue to have the interest paid off by the time they appear as open accounts in ~4 months. Good to hear they positively affect FICO scores even after being paid off.  

[Revelate]

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@ChemE_Bear wrote:

OK, thanks for the information.  It won't be an issue to have the interest paid off by the time they appear as open accounts in ~4 months. Good to hear they positively affect FICO scores even after being paid off.  

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You might as well have some fun (reindeer games in my slang) with them if you don't have any other loans on your file.

Pay them each down to like $20 or even $5 and just let them sit for the 10 years or whatever the repayment term is assuming they let you and I think Federal loans do.  Interest on what amounts to a Starbucks coffee is basically meaningless for everyone and it's a FICO strategist trick. 

[calyx]

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@Revelate wrote:

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@ChemE_Bear wrote:

OK, thanks for the information.  It won't be an issue to have the interest paid off by the time they appear as open accounts in ~4 months. Good to hear they positively affect FICO scores even after being paid off.  

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You might as well have some fun (reindeer games in my slang) with them if you don't have any other loans on your file.

Pay them each down to like $20 or even $5 and just let them sit for the 10 years or whatever the repayment term is assuming they let you and I think Federal loans do.  Interest on what amounts to a Starbucks coffee is basically meaningless for everyone and it's a FICO strategist trick. 

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^  +1 what Rev posted.
The caveat is if you are going for any kind of forgiveness that requires a history of payments (like PSLF) or if you are on a payment plan that requires recertification every year (IBR/ICR/IDR), this trick won't work.   Forgiveness plans like PSLF require a history of positive payments, and for the income-based plans, when you recertify, your due date will be "restarted" after your certification date.
If you are on the standard plan, then yes, you can pay ahead and let it sit for a long time.  Get it down to <9% (in my case, my aim is to take it down to $300) and just ride out the loan.  Put a calendar reminder somewhere so you don't mess up the final payment.  You are essentially doing the "SSL" hack that people have posted about in other areas of the forum to maximize FICO points for loans.

Student loans count like any other non-mortgage installment.  Honestly, being over 100% utilization isn't much of a ding at all.  If that's a negative reason code showing, that means your credit report is in pretty good shape.

[Anonymous]

Them unsubsidized student loans are no joke, I made sure I paid mine off quickly well it was in the 5k range. Hopefully it reflects on my reports soon.

[Anonymous]

Are you referring to when the loan is paid off? If so, from what I've seen personally and from others, paying off student loans has zero effect with the CRAs.

[Anonymous]

Would this be when it was the only loan on record with a balance? Because keep in mind it goes by aggregate installment utilization.

[donkort]

I have $65,000 in student loans, consolidated into one loan. I believe the presence of the loans probably drop my score by 20 to 30 points or so.