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To boost my credit scrore: pay off a student loan over time or right away?
I plan to buy a house next year. I have three student loans. Two have 6.8% APR and one is only 2.875%. One of the 6.8%-ers is only around 10K. In addition to making payments on all of them, I want to pay the 10K @ 6.8% loan completely off before I apply for a mortgage. Which will help my credit score the most? Should I pay off the loan in 2 or 3 payments? Or will it help my score more if I pay it off in 10 payments?
Thanks for your advice.
Asked by
Bosco123
2 months ago
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Paying them off at once will be more beneficial to your credit score than paying them over time, especially if you have other accounts (like a credit card). The effect of reducing your debt is greater than the effect of making on-time payments on an open account.
However, you are wise enough to realize that both affect your score, so ultimately (again, depending on your other credit factors), it might be worthwhile to leave a small amount on the 2.9% interest loan and continue making monthly payments on it.
You shouldn't do that with the other ones - if you have the money to pay them off, pay them off: just think about how much money you're paying in interest each month - that is not worth it!
The interest will be negligible on, say, $500 - $1000 on a 2.9% loan, so that very well might be worth keeping around. The rest - no way - pay them off!
Good luck!
nathanmedic 2 months ago
Thank you for your advice.
Aise from the extra accured interest which is the better option:
1) Pay 5,250 for 2 months and in 10 months apply for a mortage.
2) Pay 1,100 for 10 months and in 2 months apply for a mortage.
At the time of the mortage application the loan will be paid of in either senario. Is one of them better than the other insofar as trying to maximize the boost to my credit score before the mortage application?
thanks.
Bosco123 2 months ago