Posted on: 08th Jul, 2011 10:21 am
I have been rebuilding my credit over the past few years & now only owe a few hundred dollars on my student loans (started @ about 12,000). I have overpaid & do not have another payment due to them until 2/2012. This account has the oldest history on my credit report & is now helping my credit rating.
Considering the debt to income ratio, Would it be better to leave the remainder to show a payment history for even longer, or should I just pay off the rest? If I do pay off the remainder, will my score & report suffer? Considering I have very few other items on my report.
Considering the debt to income ratio, Would it be better to leave the remainder to show a payment history for even longer, or should I just pay off the rest? If I do pay off the remainder, will my score & report suffer? Considering I have very few other items on my report.
Credit is based on your ability to use, manage and repay your debts. The point of credit is to use it, effectively. For the credit scoring system, an account that has a 0 balance, is basically inactive. And the longer you dont use it, the creditor may close the account. Rule of thumb on credit, keep all balances under 40% of the credit limit, use the cards, and keep a timely payment. Derogatory, public records and overuse of cards will hurt your score. So to answer your question, you would want to keep your payments going on your debt. Possibly use one of your credit cards for food and gas, and pay it nearly off each month. If you always pay off an account, sometimes the credit bureau will pull the report from your creditor, and even though you ran a balance in the month, they may pull your report when it reports 0 balance. This is why is important to keep them open and in use.
But Chris...the item in question is an installment loan, which has no relevance from how the bureaus look at revolving debt. I see no great benefit in paying it in full now, nor in keeping it long term - it's a wash, in my view.
What you didn't tell us, Cormac, is whether you have revolving accounts or not, and that's where Chris' recommendations work, for the most part. I disagree with that 40% of credit limit citation, and avow that it ought to be 30% instead. I agree that usage of any revolving debt is beneficial, and I'd add that you ought to pay all revolving debt in full every month, to avoid interest charges; while keeping them active as much as you are able. By the way, keeping them active only entails making one charge a month, so it's not hard to do that.
What you didn't tell us, Cormac, is whether you have revolving accounts or not, and that's where Chris' recommendations work, for the most part. I disagree with that 40% of credit limit citation, and avow that it ought to be 30% instead. I agree that usage of any revolving debt is beneficial, and I'd add that you ought to pay all revolving debt in full every month, to avoid interest charges; while keeping them active as much as you are able. By the way, keeping them active only entails making one charge a month, so it's not hard to do that.
Thanks Chris & George for the insight. Chris, as George mentioned your answer was more boilerplate for revolving accounts. George, I do have revolving accounts as well, but was interested in finding out some options about this installment. If it really seems like it's a wash I may just pay it off & move on. For some reason I kept thinking it would help to keep it there being "good debt".
I would consider it a wash, frankly. You've already established longevity on that debt by holding it as long as you have (whatever time that may be). There is greater longevity - beneficial - with your revolving debt. It's a good reason to keep older cards as long as you can and avoid trading them in on new cards that have those oh-so-"special" offers.
And that last was truly more for the benefit of those who might stumble upon this thread and simply read it, instead of you, Cormac. I surmise that you already get it.
And that last was truly more for the benefit of those who might stumble upon this thread and simply read it, instead of you, Cormac. I surmise that you already get it.