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Member Since: March 2010
You paid off a loan, thus reducing your open lines of credit, impacting your average age of credit, reducing the number of ongoing payments, and changing the mix of installment vs. revolving credit. Thus, your score will almost always likely drop after you pay off a loan that has been in good standing. And, if you did not have many credit lines to start, the effect will be even more dramatic.
And, yes, the scoring system does punish you for paying off debts that are in good standing.
phnxangell's response was:
It depends. But, you can expect a black mark against you to stay on your report for up to 7 years. Payments are typically on the report for 48 months. As long as the account is in good-standing otherwise, your late payment will drop at the 48 month mark.
Checking your own score does not impact your score. (Nor does pulling your report.) You can pull your score up to once per day on this site.
Lending rules do not allow you to get an FHA mortgage until at least 2 years after bankruptcy. For a non-FHA mortgage, the time is typically 4 years.
But, you also need to be re-establishing your credit and showing good credit maintenance after the bankruptcy, as well.
Each creditor reports data once per month to the credit agencies. This day varies by the creditor. Depending on when you pay, it can be more then 30 days before it is reflected because of the timing of when you paid, the processing of the payment, and when they report.
Best thing to do is to pull your score regularly on here to see how things may change in the course of a month and get an idea for when each of them report.
Depending on the loan, there may be ways where you can have a percentage of the balance knocked off. If you are in certain professions or volunteer a certain number of hours in specific pursuits, some of the federal student loans have built in provisions that forgive part of the debt (with no hit to your standing). For instance, the NDSL (may be under a different name now) gave up to 50% off your balance if you were a teacher, law enforcement officer, or other public professions for x number of years.
Other than that, you may want to look at consolidation loans, especially if they might drop your interest rate.
But, in general, if you have student loans for a college education, you must pay them back. Not even bankruptcy can get them off your plate.
Take advantage of the hardship forebearance and other things built into the loan repayment process, if you must, but there isn't much you can do to get out of it, other than pay them off.
The good news is that student loans help your score if you remain in good standing.
Another piece of advice: As you probably recently graduated from college, the payments probably take a substantial piece of your income, and cashflow is your biggest issue, not necessarily your credit score. The best thing to do is to work on improving your cash flow, and as student loans are fixed amounts, work to pay off your lowest balance first. That will relieve some of the cash flow issues faster.
Get two credit cards (the Orchard Bank card offered here is a good one to get, and get a secured card). Make sure you use them each month, even if just for a trip to McDs each month.
Did you re-affirm any car loans? Have any student loans? Having an installment loan on your credit will also help, but it will be tough getting decent rates on any such loan shortly after bankruptcy.
But, it takes time to rebuild. The bankruptcy is on your report for 10 years, and will hold the score down during that time, but will have less of an impact over time.
Start with a couple of cards and build from there.
It cannot be removed until 7 years pass. However, the balance should be listed as $0 and it listed as discharged, settled, or something like that. If there is a balance listed and it is listed as open, you need to contact whomever is handling the loan and reporting that it is open and has a balance. If incorrect information is listed for lack of payments since the discharge, go to them first to correct it, and then to the credit agencies.
But, you will not be able to remove the loan from your credit history. A discharge is often treated as negative information and will stay on your report for 7 years from the discharge. However, if other bad information is listed after the discharge, that should be removed and should improve your score.
Rent and utilities are not debt, and thus are not reflected on your score. But, for many people, once the debts are discharged, even though the bankruptcy now shows, your score goes up because a number of the bad things no longer report some of the bad information.
For example, for those items where you have missed payments, those items that are discharged no longer count on your payment history. There are other small positive bumps, as a result. When you get your discharge, you may see your score make a positive jump. The amount of that jump will be determined by your situation.
Given the crackdown on home lending, it is much less likely to be able to get a loan now with your score than it was 5 years ago. There may be some banks that would be willing to lend to you, and other factors will come into play, such as debt-to-income ratio, amount of your downpayment, the area that you are buying the house, how long you have had your current job, etc.
If you can hold off a year, or maybe more to buy a home, you want to be building your credit, which would include obtaining, utilizing, and staying current for a credit card (you want to keep your utilization around 20% or less and make sure you use it every month).
Do not know if you have any lines of credit now, but if you do, and have any late payments for the last couple of years, it could further hurt your chances.
But, also, the lower your score, the higher the interest rate that you will have to pay, which means larger payments. Working on your score for one year can save you significantly over the life of a mortgage. For $100k mortgage over 30 years, a 100 point difference in your credit score could save you tens of thousands of dollars in interest pretty easily, and more than $100 per month in payments.