I graduated college in May and have been working full time since. I have $19,000 in student loan debt, all subsidized/no interest yet, that goes into repayment soon. I am also getting married next year, and buying a first home is on the near horizon. I have four gov loan groups, two credit cards and an overdraft line. Oldest accounts are five years, no late payments, almost always paid in full, high max with usage no higher than 7%. Mint credit score is 760.

Now, I have the money to pay off all the student loans immediately and avoid any interest. I am intending to leave about $5,000 on the group with the lowest rate for a year or so, just to have an extra cushion of cash if needed for the wedding/home purchase. This is not the oldest loan. I will still have money next year for a substantial down payment.

My question is, what is the best way to protect and boost my credit score through the process, to keep it as high as possible for a mortgage application within a year or two? Is it a good idea to pay off all the loans immediately, or will those accounts closing cause a ding to the score. Should I leave a small balance on all and start making payments to gain that history?

Thanks in advance for the help!

  • 2
    I am okay with the extra cushion, but just pay off your loans as soon as possible. You already qualify for the best rates, and score hacking does not always work out as one intends. The best thing to do is to pay your bills. You will be approved at the best rates provided your loan and down payment is within income limits. – Pete B. Nov 6 '18 at 20:00

Since credit scores are somewhat "black-box", there's no way to guarantee that you get the "highest score possible". However, even that may not make a difference, given that you are already close to (or at) the ceiling for getting the best interest rate, so anything more is micro-optimizing.

I would pay off all credit cards and lines of credit, since "revolving credit" is looked at differently than amortized loans (they are seen as a sign that you spend more than you make, which is a red flag). It will also improve your debt-to-income ratio, which will help getting your loan approved.

Then, save enough to put 20% down if at all possible. That keeps you from paying PMI, which effectively adds up to a full percentage point to your mortgage, and the extra cost might be more than the interest saved on paying the student loans.

Most importantly, make sure you can fit all of these loan payments into your budget, and get a reasonable mortgage (no ARMs, no balloon payments, no points, 15 year fixed rate if possible). If you are using credit cards now, your budget may already be tight, and adding a mortgage might make matters worse in the long run.

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    Thanks! There was only one or two months I didn't pay off the full card balance over five years. I don't really need to use the cards, but I have good rewards programs that end up giving me an appreciated amount back, and having that history at least on the credit report is a plus. It also keeps my spending down, since nickeling and diming a bank account is much easier than writing a monthly check for hundreds of dollars. – user182982 Nov 6 '18 at 21:16

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