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I'm a student that has just finished his first year at university. I just started building credit by opening a card with Discover back in January. I have been paying my balances in full, and have checked my free FICO score after each statement has posted.

I noticed something different this month, as my score did not rise or drop at all. In the key factors section of my FICO report, I received my usual

  1. LENGTH OF TIME ACCOUNTS HAVE BEEN ESTABLISHED

But the second was different, and it stated

  1. PROPORTION OF LOAN BALANCES TO LOAN AMOUNTS IS TOO HIGH: The balances of your non-mortgage installment loans (such as auto or student loans) are high compared to your original loan amounts. As you pay down your loan your balance decreases, which reduces the proportion.

The only loans I have are two student loans, Subsidized and Unsubsidized. My Subsidized was for a total of $3500 and my Unsubidized for $2000. Currently, my Unsubsidized has accrued $50.97

My question is whether I should be making payments towards my Unsubsidized loan, as I had not planned to until the due date: after graduation. Since my credit score moved neither up nor down, I didn't want to risk my credit score dropping.

Thanks!

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First off, things like this aren't necessarily problems. They list the biggest factors in your credit score, but they aren't suggesting that they are big problems per se; I have over an 800 credit score, and I still get several notices just like yours - the tiny problems that happen to be the biggest negatives left for me (usually utilization, despite my utilization being nearly ideal).

In this case, it does make sense that this would be a negative for you, and it's not necessarily one you need to worry about. You've got student loans you're not yet repaying, I'm guessing; that's what you should be doing (as you'd have to take out more loans to repay these ones). So, right now you look similar to someone who is paying their loans at an interest only repayment plan, which is a bad thing from a credit point of view.

Once you graduate, you should begin repaying your loans at a rate higher than interest-only rates (i.e., make sure you're paying some principal every month along with the interest). Until then, your credit score won't be helped out by those loans, but that's okay; you shouldn't really be applying for large amounts of credit now anyway.

Lenders don't necessarily take the score just as a number; they can get all of the separate pieces, and lenders for example offering you a student loan will be cognizant of the fact that most people in your situation will have student loans they haven't begun paying off yet.

Within a year or so of graduation, if you show a pattern of paying off your loans' principal, you will see this fade away and you'll have a better score because of it. Why it showed up just now is likely that the old second reason became less prominent: whatever that was before was less of an issue than it was. It's possible that #2 and #3 are nearly identical, and so they make minor adjustments each month they'll bounce back and forth without affecting the actual number.

Overall, don't focus too much on the short term movement of your score. Focus on building good habits and a good history, and the score itself will be fine over time.

  • Yup. We get a credit ding for the poor mix of credit--yet our scores are 800+. The ding is because we have only credit cards. (And in reality zero debt--the reporting system only takes snapshots, it can't see the balance is paid in full every month.) – Loren Pechtel Jun 1 '16 at 23:59
  • Awesome! Thank you both very much that was very helpful – Damian Vu Jun 2 '16 at 5:18

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