Impact of consolidation on FICO scores

[Anonymous]

My wife has recently finished medical school and is in residency.  She has 6 total student loans totalling about $250k.  They are some of her oldest accounts so they hold her AAOA at over 7 years.  We can leave them while she is deffering them during residency but it appears the number and total of those accounts are viewed as too much debt for some lenders so they have declined her CC applications.  Her scores are currently upper 600's and should get to 700 by the end of the year.  The question is from a FICO score perspective and potential lender perspective is it better to have one large loan reporting or 6 smaller loans??

[Anonymous]

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@Anonymous wrote:

My wife has recently finished medical school and is in residency.  She has 6 total student loans totalling about $250k.  They are some of her oldest accounts so they hold her AAOA at over 7 years.  We can leave them while she is deffering them during residency but it appears the number and total of those accounts are viewed as too much debt for some lenders so they have declined her CC applications.  Her scores are currently upper 600's and should get to 700 by the end of the year.  The question is from a FICO score perspective and potential lender perspective is it better to have one large loan reporting or 6 smaller loans??

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I've moved your post here from the Student Loan forum for better visibility and it involves FICO scoring.

[SouthJamaica]

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@Anonymous wrote:

My wife has recently finished medical school and is in residency.  She has 6 total student loans totalling about $250k.  They are some of her oldest accounts so they hold her AAOA at over 7 years.  We can leave them while she is deffering them during residency but it appears the number and total of those accounts are viewed as too much debt for some lenders so they have declined her CC applications.  Her scores are currently upper 600's and should get to 700 by the end of the year.  The question is from a FICO score perspective and potential lender perspective is it better to have one large loan reporting or 6 smaller loans??

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I'm not an expert, but I believe it makes no difference to her scores.

[Anonymous]

I tend to agree with SouthJ.  After all the total debt won't be changing.  If she were to consolidate them, the older loans would just appear closed, and that wouldn't affect her AAoA.

Does she have any credit cards?  If so, how many and what is her total utilization as it it appears on her credit reports?

If she already has 3-4 cards, the issue may be moot, since she doesn't really need more.  I can see that our OP has 14+ cards of his own -- is she trying to do that too?  It's not a bad thing, but it's also totally not needed.  A person can be fine with 3-4; having more cards doesn't help your score.

Her somewhat low scores (upper 600s) suggest that the problem lies somehwere else -- possibly the presence of lates or other derogs, possibly CC balances, etc.

[Anonymous]

She has 5 cards and is AU on several of mine.  Her and I share a few 30 day lates from a few years ago as we adjusted to a single income life.  Her utilization is 27%.  The only other negative is a IRS lien that is paid and released that we are in the process of getting withdrawn.  We are hoping that will result in a nice bump, from what I have read most get a pretty decent bump (40 to 90 points but some have had none).

I believe we will just leave well enough alone for the next year or two.  Most of our baddies age off in the next 24-36 months or will be so old in a couple of years they will have minimal impact.  We are just a couple of years away from all of these sacrafices paying off financially.  

[Anonymous]

Thanks Mod, I wasn't sure where to put this.

[Anonymous]

I think your decision about whether to consolidate should be based solely on what makes the most financial sense, ignoring anything about FICO, since there will be almost no scoring impact.  If you can see that you guys will benefit from a sharply lower monthly payment, or a lowered interest rate, then I can see it making sense to consolidate.  Those considerations might matter when the loans leave deferral.

I really like your plan to leave well enough alone (LWEA) when it comes to applying for more credit cards.  She has five of her own plus has a number of additional CCs on her report as an AU.  More cards will not benefit her at all.  (By contrast, if she only had 1-2 cards, then there would have been a case for trying to think through how to add an extra card or two.)

LWEA is a good plan too, as you say, because it meshes well with the lien coming off and the Day 30 lates becoming further and further in the past.  (It also works well with inquiries having no effect, which will help if she has a lot.)

The final addition you may want to make to your credit improvement plan is to pay off all your CC debt.  It's fine if that is not realistic with her in school.  But it should be part of your plan.  Her score will benefit a lot from having several $0 balances.  Ideally she wants one card showing a small positive balance with all the others showing a $0.

[Anonymous]

Thanks for the responses.  We don't carry much CC debt and plan to have most paid off in the new couple of months.  Financially it will make the most sense to consolidate all of these student loans, I suspect we will do that sooner rather than later because communicating with multiple lenders on defferment extensions alone is a pain so we will likley do that soon.  We are going to garden and not add any accounts for at least a year.  We have plenty of credit available to us and its now time to settle in for the long haul.  I wouldn't be surprised if we garden for 2 years or more.