Money money money, Must be funny

July 1, 2008 9:06 PM

A noobie question on credit scores! I know raising your score is partly done by reliable monthly payments on credit cards and loans - and people who are just starting out to build their scores, are often advised to get a card and begin to responsibly pay it off, to catch the notice of the reporting agencies. Would that mean that if you can pay off a large credit loan (e.g., in the realm of $2k) immediately instead of sticking to a monthly payment system, you're missing out on chances to further raise your score? Or does being able to pay off such an amount in full give you an equivalent gold star sticker?

I wish this was something that didn't need asking, but my 'financial tutors' have been virtually nonexistent while growing up. D'oh!

posted by Bakuun to Work & Money (6 answers total)

The most important factors are your overall debt to credit ratio and the age of your accounts. Carrying a balance or actively using your credit won't improve your score. See this excellent Fatwallet thread.
posted by Mr. Gunn at 9:17 PM on July 1, 2008 [2 favorites]

Today's Fresh Air might help.
posted by Meg_Murry at 9:32 PM on July 1, 2008 [1 favorite]

That's a very good thread, thank you Mr. Gunn
posted by Joybooth at 10:18 PM on July 1, 2008

Your question would probably be better asked at Credit Boards Lots and LOTS of good credit info there.
posted by Mesach at 10:19 PM on July 1, 2008 [1 favorite]

Carrying a balance or actively using your credit won't improve your score.

This is clearly true for credit cards, because credit cards report your account as "open" and "ontime" every single month no matter if you paid in full, made charges or did not make charges. For a traditional loan, this is not the case. If you pay a loan off, it will no longer show up as an "ontime" payment month after month. As far as I can determine there is not enough empirical evidence to indicate which would be more helpful to your score in that specific case.

Although I would agree that that credit utilization (the percentage of your available balance that you have charged) and length of credit history are very important, I would say that timely payments are probably the "most important" Unfortunately, they tend to be something that subtracts points for late payments more than adding points for timely payments.

Mesach is correct that Credit Boards is the best source of information for debtors.
posted by Lame_username at 6:19 AM on July 2, 2008

From the information I have been given there are several factors on the credit scale. Here's what I have heard, and I'm not sure if it's 100% correct, but good baseline.

35% - How you make your payments (on time/late)
30% - Total amount of debt - particularly revolving credit (don't want too much)
15% - Age of credit
10% - Types of credit (mix between installment loans and revolving credit)
10% - New credit - the more new credit cards or loans the worse off you are

If you pay off the 2k loan, it probably will negatively affect your score a little bit, but if you have the means to pay it off, do it. Keep your credit cards paid off in full (helps the 30%) and on time (helps the 35%), and then give it time. You'll have opportunities to get more loans in the future that will affect your credit more. Also, you should make sure you get a credit check to see where you're at right now, and maybe find a professional to go over your credit scores. I talked to a home loan specialist about my credit scores to determine what I needed to do to round it out.
posted by ets960 at 7:15 AM on July 2, 2008