FICO score did not change after paying 75K in student loans

[asian pharm]

So I had a total of 175K in loans and I was paying it income based so far and saving the rest of the money for a house since past 2 years. I had 75K saved in my account. Then, I changed the plan.
I decided to pay it all off in the student loan and continue paying aggressively and get rid of the loans in the next 3 to 4 years. Hence, I paid all that 75K to student loans on a single day in one single transaction.
My debt went from 175K to 100K in one day, however my FICO score did not change a bit. I thought that reducing the debt increases the FICO score greatly! I have a 690 rite now and I was expecting it to go up.
Does anyone who paid their loans aggressively know if their score went up? Can you share your experience? What am I missing here?

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[deleted480308]

So I had a total of 175K in loans and I was paying it income based so far and saving the rest of the money for a house since past 2 years. I had 75K saved in my account. Then, I changed the plan.
I decided to pay it all off in the student loan and continue paying aggressively and get rid of the loans in the next 3 to 4 years. Hence, I paid all that 75K to student loans on a single day in one single transaction.
My debt went from 175K to 100K in one day, however my FICO score did not change a bit. I thought that reducing the debt increases the FICO score greatly! I have a 690 rite now and I was expecting it to go up.
Does anyone who paid their loans aggressively know if their score went up? Can you share your experience? What am I missing here?

You want your score increase the next morning?

 

[owlegrad]

In general decreasing your credit utilization will increase your credit score but I’m not sure if that applies to student loans or not. Anyway credit scores trail by a month I think right?

 

[PolarPop]

You shouldn’t be 690 because of student loans. FICO tells you why your score is bad... credit history too short? Using too high of a percentage of your available credit? Miss any payments?

Even if you have 200k in student loans you should be able to hit at least 750 if all the other areas are good.

 

[ldiot]

I think paying off debt has more of an effect with revolving credit, for example credit cards

 

[radio frequency]

My score actually dropped quite a few points a month or two after I paid mine off, but it bounced back up about six months later. Strangely it bumped up quite a bit as soon as I took out a mortgage.

The score is based around the kinds of debt you have and if you are a regular payer of those debts. People who pay debt off early aren’t actually desirable to the companies who make money off your debts, so it may not positively impact your score, but that doesn’t mean you shouldn’t do it.

Regardless, I don’t think your score is that low because of the student loans. There’s something else at play.

 

[Ace41690]

I don't think student loan burden affect your score too much. I'm just graduating and despite having 200k in loans and never having a decent income my score remains in the low 800s. Proving once and for all there's no reason to ever pay off my loans

 

[SpartanWolverine]

Assuming all else on your account is fine (good mix of credit, good length of credit, few inquiries, low utilization, no missed payments) it will take a month or two for a large payment to reflect on a credit score. My experience paying off a substantial portion of loan debt raised my score 39 points over two months. Agree with others that your baseline score is lower than I would expect just with the loans so there are probably other factors at play.

 

[WVUPharm2007]

If it was your oldest line of credit, that might knock it down some points, too.

 

[mentos]

My score was in the high 700s before taking out student loans and stayed there after paying them off. I didn't notice any major changes from borrowing or paying off student loans. However, my score jumped into the 800s after taking out a mortgage.

 

[asian pharm]

You want your score increase the next morning?

No, not the next morning. But it has been three months now since my payment.

 

[asian pharm]

You shouldn’t be 690 because of student loans. FICO tells you why your score is bad... credit history too short? Using too high of a percentage of your available credit? Miss any payments?

Even if you have 200k in student loans you should be able to hit at least 750 if all the other areas are good.

I have never had a missed payment or something in collections. Credit history is 5 years and some months old, and credit utilization is only 10 percent. I mostly use my debit card for most things. No specific reason for using debit card more than the credit card.
Its just that, it has been always like that (use of debit card more then credit card) ever since I was a student. When I was a student (undergrad and pharm school), I did not had a credit card, did not bother to get one, and always used my debit card. Only after graduation I got a credit card.
So, in such situation why is the score still so low? Any thoughts?

 

[Old Timer]

FICO scores track student loans differently than credit card debt. Student loans are classed in with mortgage payments and car loans as they are fixed loans with a standard payment and a defined length. For fixed loans they key is NOT TO MISS a payment. For revolving credit, you need to stay under your credit limit on your cards. My score has been around 850 for a while and now it's down to around 800. I just remodeled my kitchen and I opened up a slew of new credit cards. Anybody willing to give me something for opening an account I took it.

• 40% off on First Purchase at Wayfair....... Check
• 10% off First Purchase and no interest for 24 months from Home Depot..... Check
• 15% off First Purchase from Pier one.......Check
• 10% off First Purchase from Home Goods.....Check......

So, opening 5 new accounts in a 60 day period tends to drive your score down. It will go up..... You aren't getting any better interest rates with 850 over 800......

 

[asian pharm]

If it was your oldest line of credit, that might knock it down some points, too.

Yes, student loans is indeed my oldest line of credit. So, are you saying that since student loan is my oldest line of credit, the score will further go down (instead of going up) when loans get paid off? Howcome?

 

[SpartanWolverine]

I have never had a missed payment or something in collections. Credit history is 5 years and some months old, and credit utilization is only 10 percent. I mostly use my debit card for most things. Not using debit card more than the credit card for any specific reason.
Its just that, it has been always like that (use of debit card more then credit card) ever since I was a student. When I was a student (undergrad and pharm school), I did not had a credit card, did not bother to get one, and always used my debit card. Only after graduation I got a credit card.
So, in such situation why is the score still so low? Any thoughts?

5 years is a relatively short credit history and you still have significant debt. As noted above recent inquiries can significant drop you (temporarily) as well.

Think of your score as being roughly 35% payment history, 30% debts, 15% length of credit, 10% new credit/inquiries, and 10% your credit mix.

 

[owlegrad]

You need to get a credit card, set it up for automatic payments. And then use it for gas and small expenses. After a while you’ll have a strong history of OnTime payments and low credit utilization. That should easily propel you into the 700s at least. After that it’s just a matter of keeping all your accounts for a long time and having those good behaviors.

 

[WVUPharm2007]

Yes, student loans is indeed my oldest line of credit. So, are you saying that since student loan is my oldest line of credit, the score will further go down (instead of going up) when loans get paid off? Howcome?

Because Fair Isaac's equation for FICO is stupid?

 

[PolarPop]

I have never had a missed payment or something in collections. Credit history is 5 years and some months old, and credit utilization is only 10 percent. I mostly use my debit card for most things. No specific reason for using debit card more than the credit card.
Its just that, it has been always like that (use of debit card more then credit card) ever since I was a student. When I was a student (undergrad and pharm school), I did not had a credit card, did not bother to get one, and always used my debit card. Only after graduation I got a credit card.
So, in such situation why is the score still so low? Any thoughts?

It sounds like you don't have much credit history outside of student loans and one credit card that you rarely use. You need to use credit to build it. As @owlegrad mentioned, apply for another no fee credit card or two with good rewards and start using them rather than your debit card. Just pay off the balances each month so you never pay interest.

Signing up for credit karma is also helpful because it gives you a better idea of where you can improve and it's free.

 

[panasoniku]

For security reasons, you shouldn't be using your debit card that much. If someone skims your debit card, it can take weeks (or months) to get your money back.

If someone skims you credit card and you report it, the fraudulent charges will be dropped and won't affect you.

Agree with everyone else about opening an additional credit card to use and pay off every month. Might as well earn cashback, points, etc while building your credit history.

 

[John Detter]

Agree with everyone else about opening an additional credit card to use and pay off every month. Might as well earn cashback, points, etc while building your credit history.

If you're the type with self-control, there's no good reason to not put everything on a credit card and pay the bill in full every month. Its literally free money or points. Just find a good all-around card that you plan to keep for the long haul. And I would recommend that card be fee-free since that would give you the option of keeping it open penalty-free to maintain the length of credit history if you decide later on that another card fits your lifestyle better.

Another thing to consider, you mentioned that you already have a credit card that you barely use. If that card already fits the bill you could continue to use it and request a credit limit increase. In the short term, you may take a hit on your FICO but in the long run, it lets you keep your credit utilization low.

 

[owlegrad]

Another thing to consider, you mentioned that you already have a credit card that you barely use. If that card already fits the bill you could continue to use it and request a credit limit increase. In the short term, you may take a hit on your FICO but in the long run, it lets you keep your credit utilization low.

Your entire post is gold but I just wanted to chime in on this point in particular. This is a great idea. Probably won’t even take a hit because they might not even do a hard credit check since they can use their own history with OP to determine credit worthiness.

 

[Old Timer]

If you're the type with self-control, there's no good reason to not put everything on a credit card and pay the bill in full every month. Its literally free money or points. Just find a good all-around card that you plan to keep for the long haul. And I would recommend that card be fee-free since that would give you the option of keeping it open penalty-free to maintain the length of credit history if you decide later on that another card fits your lifestyle better.

Another thing to consider, you mentioned that you already have a credit card that you barely use. If that card already fits the bill you could continue to use it and request a credit limit increase. In the short term, you may take a hit on your FICO but in the long run, it lets you keep your credit utilization low.

This is the winner. There is no reason not to do this. I have received over 11,000.00 from GM of the purchase of vehicles just for charging my groceries on my GM card. I have 240,000 miles on my Lufthansa card for my trip to Germany in the near future. that's either 4 free economy seats or three upgrades to business class....... Charge everything and pay the balance each month. NEVER use a debit card.

 

[confettiflyer]

FICO is based off the balance from the statement. If you get a statement on January 22nd, due February 15th, and pay on February 15th....the statement that will show the reduced balance won’t be until February 22nd, and there’s typically a 2-4 week lag before it’s picked up by a reporting agency and thus reflected on FICO. So you’re looking at FICO change about a month-month and a half later.

I used this to great effect before I bought my house. I would charge EVERYTHING to credit cards and had these massive balances on my statement (which I paid off monthly). The problem is, every statement had these $$$$ balances on them, so I simply moved my payment back 5 days into the SAME billing month they were charged in and created zero balance statements. My score rocketed up ~50 points by doing so.


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[confettiflyer]

Signing up for credit karma is also helpful because it gives you a better idea of where you can improve and it's free.

If you do a credit monitoring service, use FICO’s own MyFICO, it will show you your FICO score and not some proprietary score (Vantage or something). Most lenders use FICO 08 for home loans.

They also have a robust simulator software, so you can see what changing balances or expanding credit lines will do.

It’s expensive, but I used it 6-8 months before buying a home to finesse my credit score. I cancelled it and now use the free credit scores that come with my AMEX and Discover cards.


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[mentos]

As others have mentioned, if you're not charging everything to a credit card, you're leaving free money on the table. My wife and I haven't paid for a plane ticket in about a decade and we don't even churn that much. Our goal is to never pay for one for the rest of our lives.

Never ever use a debit card. One time someone across the country generated my new Citi card number (I hadn't even received it in the mail yet) and charged 6k+. One quick call to Citi and all the charges were voided. If that had been my debit card, they would have drained my bank account, I would have missed my rent and who knows if I would've gotten any of it back.

 

[pezdispenser]

My score is around 820 on Credit Karma. Student loans, 2 car loans and a mortgage refinanced into another mortgage were all paid off years ago, and I don't recall any dramatic change in my score when I paid them off.

I believe my score is high because I have always had lots of credit cards, paid off in full every month. Currently I have 16 cards with a total credit limit of $150k. But you need to keep the utilization really low ~1-2%, on individual cards and the total. Whenever I have a large statement balance (that's what gets reported), say $3k on a $15k card = 20%, my score drops a few points. But after I pay it off, the score goes back up. You can get around this by making a payment before the statement closes.

 

[BidingMyTime]

What everyone said, use credit cards for everything, then pay them off completely each month. My FICO hovers between 810 - 830, I've hit 838 a few times. FICO *LIKES* loans, especially installment loans, but credit cards loans are also necessary to show that you are a dependable payer each month. With little credit history, your score will be lower, because FICO isn't sure what you would do if you suddenly got credit. Just make sure to pay if off each month so you don't end up like Remy

 

[ldiot]

I don't think student loan burden affect your score too much. I'm just graduating and despite having 200k in loans and never having a decent income my score remains in the low 800s. Proving once and for all there's no reason to ever pay off my loans

I'm honestly not trying to be rude,and you are probably joking, but becoming debt free and building wealth is more important than having a good credit score lol. If having a good credit score is your end goal you might want to re-evaluate.

 

[Old Timer]

I'm honestly not trying to be rude,and you are probably joking, but becoming debt free and building wealth is more important than having a good credit score lol. If having a good credit score is your end goal you might want to re-evaluate.

That may be true, but understanding your FICO is not an inconsequential thing. People with higher FICO scores pay lower interest rates on just about any kind of loan. It's also nice to be able to buy whatever you want just by signing your name on a piece of paper.

 

[Ace41690]

I'm honestly not trying to be rude,and you are probably joking, but becoming debt free and building wealth is more important than having a good credit score lol. If having a good credit score is your end goal you might want to re-evaluate.

I'm joking, partially. But I disagree that paying off all of your loans immediately is the best path forward. Especially if they are gov't loans that qualify for PAYE.