The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: B L I S S on April 13, 2016, 11:13:24 AM
-
My student loans are my oldest line of credit by 3 years and my only installment loan. I have just under $2K left across 2 accounts.
At $750 a month I could finish paying them off in July. But that would result in a decrease in my average credit history age and a shift in my credit mix. How much of an impact? I have no idea. So I turn to smarter folks in the room... would you leave small amount, say $50 or so, in my student loan account at 5% to keep my score from dropping? Or is the effect negligible?
-
I wouldn't make the decision based on your credit score, as the effect will be negligible. STudent loans are different from 'revolving credit' like credit cards. The main factor for student loans is whether or not you've paid them back on schedule (or faster).
Credit history will build rapidly - the only reason to worry about it is if you are planning on taking out a loan in the next few months.
What's your current credit score?
-
I'm sitting at 770 according to credit karma. No plans to take out a loan in the near future but things change at the drop of a dime
-
Not sure if this helps, but I once paid off a private student loan very early, and my score went up because of the lowered outstanding balance. IMO the credit score effect would not be the determining factor here, I imagine it would be pretty negligible in the long run.
-
Pay them off, then throw yourself a party and don't look back!
I closed all my credit cards once, when I got pissed off at bank of america. My credit score dropped immediately by about 20 points, but within a few months went even higher than it was before.
-
I'm sitting at 770 according to credit karma. No plans to take out a loan in the near future but things change at the drop of a dime
I would not worry with a credit score of 770. Paying down your loans will help your ratio of available credit to extended credit, while giving you a slight ding in future months for not making another debt payment on time. It's a wash, and we're talking about changes to your score in the ~20point range.
Realistically any score above ~720 should qualify you for the best rates. Keep using credit responsibly and you'll stay above that threshold.
-
If the balance were substantial, then I'd give advice based on the interest rate (pay them off if it's high; keep them and invest instead if it's low). But since the balance is only $2K, you might as well just pay them off so you don't have to think about them anymore.
Either way, the effect on the credit score is not important decision criteria.