Real Estate Investor · CA · Member since 2009 · 36 posts · 2 votes
I have student loans that I am paying. I just pulled my credit report and they are greatly affecting my overall debt/available ratio. What happens if I pay off one of the loans, do I lose that debt + what is available? I was considering paying off one of the loans, but will I be affecting the ratio in an unanticipated way.
Example:
Loan A $3500 Available - $2000 debt left. 57%
If I paid it down to let's say $200 5%
This would greatly improve my overall debt/available ratio; however, if I paid it off completely, I would then extinguish that debt and that credit available not including that good ratio in my overall ratio.
I understand that reducing my debt will improve my credit. My question is if I should be cautious about paying off a loan because the credit available will be erased from my credit report. Would I be better off keeping all the loans on there until I'm in a better position to pay them all off?
Once you have graduated the student loans are no longer "open lines" you can borrow against. They are treated like any other declining balance installment loan. Meaning, the % of the balance as opposed to the highest balance or what used to be the available credit limit are meaningless. Once you are no longer a student, you can't increase the balance of these loans except by defaulting.
Paying them down or off entirely will have the same effect. It will reduce your debt payment to income ratio and that is ALWAYS a good thing.
However, if you have other debt, like credit card, car loans and such, PAY THOSE OFF FIRST. Student loan interest is deductible even if you don't itemize. Other consumer debt interest is not deductible whether you itemize or not.
I just checked out my equifax credit report and lists all of the loans as having credit limit as $0, which validates what you said; however, in my credit summary, I have an extraordinarily large debt/credit ratio.
I just checked out my equifax credit report and lists all of the loans as having credit limit as $0, which validates what you said; however, in my credit summary, I have an extraordinarily large debt/credit ratio which gives me an also extraordinarily large debt/credit ratio for all of my debts.