New student loan help

[Anonymous]

Hi,
I'm new here and I had an ok fico score before today. I had a 704. I have no negatives on any of my reports and I recently got a student loan from the department of education for $2500. The only account before today was a Macy's card that my mom added me as an AU on. It's a 40 yr old account and 32% utilization. Well today I checked my fico score and it dropped 43 points to 661 since the student loan was added since last month. I checked credit karma too and saw my Equifax score dropped 15 points as well since the loan was added.

My question is why did my scores drop so significantly for a student loan being added? I thought student loans didn't have that much of an impact until I actually start paying them. Would I be better off to wait and see if my score improves or should I start paying the loan so it shows a positive history of payments even though I'm not required to pay until after I graduate? I recently was approved for a secured credit card but that hasn't shown up on my reports yet, I think they will in the next month.

Any help is appreciated. I'm not sure what to do from here to improve my score.

[Anonymous]

Sorry, I meant to say, my mom added me as a joint account owner, not an AUb

[Anonymous]

Hard to say what is going on.  You do have a very thin profile (meaning very few accounts) and credit scoring models can get very jittery when that is the case.

One thing that happened is your Average Age of Accounts went from 40 years to 20 when you added the new account.  That's part of the loss.  Your Age of Youngest Account went from 40 to 0.  That's another part of it. 

Congrats to you for adding your own credit card.  That is a great first step.

Would your Mom be willing to pay off her Macy's card altogether?  Pay it down to $0?  That would help your score a lot.  (And hers in all likelihood.)  Then you could use your new credit card for a small purchase once per month.

BTW, if your mom were to pay off the Macy's card, it doesn't mean she wouldn't be able to use it.  It's possible to use a card a whole lot and still make it report $0.

[Anonymous]

Ah ok that makes sense. The balance on the Macy's card is from a purchase my brother made that he's paying down. I wasn't fully on board with him using it to buy a 4K ring but my mom gave him the ok. It's down to almost 3k but unfortunately he's unable to pay it down faster than the minimum payments(0% interest).
I've thought about using my own savings to make a dent in the Macy's account but I'm trying to save for a down payment on a home in the next year or two (fha loan).
I'm only using the secured card once a month to make a small purchase and then pay it off every month. I work in a bank so I've gotten some advice on how to improve it that way but I was just shocked to see that a small student loan dropped my scores so much.

One more question: if I have to add to the student loans to pay for school will that addition drop my score even more or not as much since the account is now open?

[Anonymous]

It's possible but the dent will be small.  Do what makes financial sense rather than credit score sense.  And remember that as the Macy's card gets paid down your score will prove quite a bit.

Are you certain that the 0% offer will last long enough for your brother to pay it off making minimum payments?  And have you looked into the consequences if he cannot?  Some 0% offers result in you owing interest on the entire amount if it is not paid off in (say) 12 months.

Bear in mind that you are a primary owner on this card -- not an AU.  If late payments are made, those will affect you for seven years. 

[Anonymous]

Yes, I actually talked to Macy's the other day because I wanted to find out how much longer it will be 0% interest and they told me that it's been 0% interest since 2015 which was before the large purchase and there's no "end date". I even checked the statement and it shows the date the 0% interest went into effect and there's no date listed on the "end date" for the promotion. I'm not sure how that's possible to have 0% forever but I did check to make sure it didn't have to be paid in full in within a certain amount of time.

I am definitely aware of what could happen if he doesn't pay it so I monitor the account every month before it's due and i have the ability to pay it if he's unable to.
Thank you for all your help. I am working hard to make sure my credit is solid so I can finance the things I need to in the next few years. At this point I think it's a bit of a waiting game to age my newer accounts and continue to get the Macy's paid down.

[Anonymous]

Sounds like you know what you are doing.  Best of luck!