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Posted in Student Loans
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Question By
Zoj

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One large loan payment or multiple payments for a higher credit score?
If I have the money to pay off a student loan outright there are 2 scenarios I can consider:

1. Pay it all off with one payment.
2. Make multiple smaller payments over the course of say a month or two to finish paying off the loan.

Would scenario "2" tend to raise my credit score by making it appear like I had more total number of loan payments? Or do these extra payments not really count as more payments since they are made before the due dates?

Also, is it better to not completely pay off the student loan and leave something like $100 to avoid completely closing the account and lowering my credit mix? My only kinds of debt now would be my student loans and one credit card. And how am I supposed to find out the "goodwill" threshold where if I go below this amount my loans will be closed? (can't find it on the website for my student loan)

Note: I only care about what would raise my credit score so please don't say I should pay it all to get it out of the way. I'm diligent at paying on time and if I reduce the loan to $100 the extra interest I pay from not closing it out is negligible to me.

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Tough Question

Helpful to 2 out of 2 people

This really depends on your credit profile.  Therefore, I can't outright answer, but hopefully the information I provide can help you make the decision.

Paying off immediately:

If the student loan is your oldest account, closing it will drop the average age of your open credit accounts thereby causing a drop in your score.

Dependimg on your debt and the remaining balance on the loan, paying it off could reduce your credit debt significantly and cause a raise on your score.  However, if your close to paying it off I imagine the balance is relatively low now and paying it off won't have a huge impact.

Making Payments:

Making multiple payments in a single month will not do anything, as all the payments in the month (billing period) will just be reported as making one payment on time.  To build history you would need to make regular payments every month, as you have been.

The amount when they will close is different depending on the underwriters.  You would need to call your lender to determine this level, if there is one at all.

Some Suggestions:

If you can keep the loan open for several months and pay on time, this will help your score.  But, eventually you will pay the loan off.  To counter the impact of this you could open a credit card or installment loan and let that account age as you pay off your student loan.

You could "piggyback" as an authorized user on one of your parents or spouse's credit cards.  Being an authorized user will cause that account to appear on your credit report, so be sure the account has a good payment history and utilization before doing that.  Also, on rare occasions credit card companies will not report authorized users but this is the minority.  It needs to be a relative.  If the reporting agencies determine you do not have a relationship with the original account holder, they will not factor the account into your score.

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Helpful to 1 out of 1 people

The extra small payments dosent do much if any to better your scores, and they don't count towards your total number of payments, whether you pay 5 times a month or one payment per month makes no difference, only thing matter to your score is the payment is paid on time per your agreement. Yes, often times when their installment loan been paid? Their score drop. So If it's allowed, I would try to starch it out as long as I reasonably can.

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