Debt payoff and credit score?

smetter04 · November 2015

Yesterday, H and I paid off our entry door credit card (0% interest thru Dec 2015) as well as his car. We also put $1400 toward his SLs. So now our only non-mortgage debt is about $1500 of SLs.

I'm ready to just pay the whole lump sum of the SLs to get rid of them. However I'm curious about how paying off so many debts in a short period of time affects credit scores, if it affects them at all. Both the SLs and car are in H's name, and I think the door card was in my name (but I'm not 100% sure on that). We'd like to keep our credit scores high. Thoughts?

Xstatic3333 · November 2015

I don't think I'd keep the SLs around just for the sake of your credit score, especially when they'll be gone soon anyway. Do you have a credit card that you use and pay off monthly? That's one way to keep your score active. I'm pretty sure your mortgage will do the trick as well.

dragonstarjk · November 2015

Paying all of these off in a short period of time is certainly not going to lower your credit score. Eventually, it may impact it because they will fall off your credit report, but that is years from now. Even then, it's not going to negatively impact it in any big way.

It does look good to have long-term accounts open on your credit, which your mortgage would count. I would assume the entry doors wasn't long term anyways, so it probably didn't do much for you.

short+sassy · November 2015

@smetter04, are we sharing the same brain today, lol? I paid off my car loan on Friday, just so I'd have one less bill to pay. But I paid it off with my HELOC, so it wasn't really like I paid it off with cash.

Credit score was the biggest thing I debated. Because, at least from the research I've done, paying off a loan will usually lower your credit score slightly...unless it is being replaced with the same type of loan. Even as ridiculous and dumb as that sounds.

Part of a credit score...though it is a small part...is called something like "mix of credit". In other words, the more types of credit one has, the more their credit will be increased a bit or vice versa. Not numbers of lines of credit, but types. For example, a car loan, a home loan, a credit card, etc.

But I said, "To hell with it, it shouldn't lower my score much if at all, and I'm sick of setting aside money every month to pay this loan. I'd rather stay laser-focused on paying off my HELOC with whatever extra income I bring in."

smetter04 · November 2015

@Xstatic3333, both H and I have credit cards that we use on a monthly basis.

@short+sassy, I agree that I'm tired of the monthly payment that feels like it's going nowhere! Which is why we will probably allocate any extra funds at the end of November toward paying them off. We will likely be opening a line of credit for a car in the next year, so I was just curious about what to expect with our credit scores when that time comes.

Thanks everyone!

simplyelise · November 2015

I wouldn't worry about it. The only reason it would go down in this circumstance is because you are losing out on the benefit of paying regular payments on a revolving loan. But because it's not an open line of credit, the main effect of student loans is the possible negative effect to your score if you are delinquent on the loans. Also, if you have a credit card open and use it but pay it off regularly, you are probably not going to get dinged much in the "payment history" category of the credit score.

We're in debt payoff mode, but none of the debt is in my name. I have never had any interest-accruing debt or revolving loans, just 3 credit cards over the last 8 years (since I was 18) with only 1 open now. It has a 15k limit and I have never carried a balance. Even with only putting a tank of gas on it a month, I still have a 780 credit score. I was up to 830 when we had our CC open for the honeymoon and were carrying a 0% balance of around $2k for about 4 months. But the difference between a 780 and 830 is pretty negligible at that point.

If you want to do some research on credit score calculations, FICO has a good breakdown:

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

bmo88 · November 2015

Paying off your debt will positively affect your credit score. It would only potentially negative affect it if you shut down a card. Closing out a student loan account does not negatively affect your score.

brij2006 · November 2015

bmo88 said:

Paying off your debt will positively affect your credit score. It would only potentially negative affect it if you shut down a card. Closing out a student loan account does not negatively affect your score.

All of this. It won't negatively affect your credit score.

The mortgage will help with that department. You will still have an open debt line that is active.

Nat009 · November 2015

In my experience, paying off non-revolving credit can actually hurt your credit. Sometimes significantly if you don't have a decent mix of other open lines of credit or history. If you don't have a ton of history or credit, and have a major purchase that you want to make in the near future (>6 months), then I actually wouldn't pay it off.

When we paid off our mortgage, my husbands credit tanked and took 6 months of aggressively using credit and adding him to accounts to bring his score up. He has a car that we could pay off that would, again, probably lower his score if paid. Instead, I put big chunks of money on it every few months and basically let it ride out. It's so annoying because you would think that paying off debt would be beneficial, but for some it is not if the history/credit mix isn't there.

Hope that helps!

Debt payoff and credit score?

Re: Debt payoff and credit score?

Choose Another Board

Search Boards