School Loans and Credit Scores

[bhkyra]

I will be graduating college soon. Over the five years or so, I accumulated about $10,000 in student loan debt total in three loans, mostly in the first two years.

The past two years I have been working hard to pay down this debt, because I want to be able to save for other things without feeling guilty because I owe somebody money.

I have paid off two of the three loans. The one remaining is about $2000 at 2.23% interest.

My credit score right now is in the 730s, only held back by a lack of credit. I have a credit card that has been open for 5 years that I pay off every month, and the student loans.

Will it negatively impact my credit score if I pay off the remaining student loan in full?

Thanks for your help!

[Xin Lu]

I don't think it would impact your credit score. My husband paid off his car loan and student loans in full before we got married, and that didn't affect his scores. Then again, I have no idea what secret formula these credit bureaus are using.

[bhkyra]

Thanks.

I had hoped not, since it seems counter-intuitive that paying off debt would result in a lower score. Once the account is closed, does it still remain on the credit report? I think it does, but I can't remember.

I wish the credit score formulas were printed somewhere. It seems as though every time I run across "how they work" it is merely speculation.

[Olan]

I don't think your credit score will be dramatically affected. While Fair Isacc says that about credit utilization accounts for about 30% of your FICO score and therefore the closure of an account will negatively affect your score bit I think that in the long run, it would be better to pay off the debt now if you have the opportunity to do so. Remember that credit utilization is not the only component of your score- 35% of it is based on your payment history, 15% is based on the length of your credit, 10% on type of credit used and another 10% on recent search for credit or new credit obtained. Just keep the credit card open and make sure you pay off the balances each month.

Besides with low interest rates present in this economy, 2.23% isn't bad especially when the prime rate is currently 3.25%, I think it's a better bet to pay off the balances now before interest rates start climbing up again and you get to keep some extra cash in your pocket rather than use it to pay higher interest fees. Something else to keep in mind is that unless you plan to get new credit in the next couple of months, I don't think you should worry yourself endlessly about each minute increase or decrease in your credit score. 730 is a decent score and I don't envisage your score dropping more than -20 points if you pay off your student loans.

Hope this helps.
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[TheDebtHawk.com]

Don't worry about the credit hit. A credit score is important for only one thing and one thing only - getting into more debt.

People worry about it way too much. However, I am not saying that you should be reckless with it. Just don't worry about it.

Tip: If you are still worried about paying it off, call your credit card company and ask for a credit line increase. This will offset the closing of your student loan.

[Kiara Linda]

If you're in community college you should take as many classes there as possible. In my experience there is no distinction between community college and university gpa when applying to a professional school...assuming that's what you want to do. I think it's a load of garbage personally. As far as loans go...there are tons of scholarships out there. If you can't find one don't get a student loan thru a private bank...get a govt loan.