Student Loans and High credit card balances

Will a deferment or forbearance on my student loan drop my FICO® Scores?

It’s a common practice for individuals to file for deferment or forbearance on student loans while they’re still in school. A deferment or forbearance allows you to temporarily stop making federal student loan payments or to temporarily reduce the amount to pay.

If you‘re enrolled in an eligible college or career school at least part-time, in most cases your loan will be placed into a deferment automatically, and your loan servicer will notify you that the deferment has been granted. If you enroll at least part-time but don’t automatically receive a deferment, you should contact the school where you’re enrolled. Your school will then send information about your enrollment to your loan servicer so that your loan can be placed into deferment.

The reporting of a deferment or forbearance status on your student loans to the credit bureaus in and of itself will have no negative or positive impact on your FICO® Scores.  However, you should note that FICO® Scores still consider information about the student loan (payment history, balances, date opened, etc.) even when in a deferred or forbearance status.

So make sure you continue to make payments on time if you are applying for deferment or forbearance until you’re absolutely certain the process is completed.

Does a history of carrying high credit card balances affect my FICO® Scores?

A member asked this question because he has historically carried high balances on his credit cards (a total of over $50,000), but recently paid $5,000 off one of his credit cards. He didn’t see the increase in his FICO® Scores that he anticipated.

It’s important to understand that, while balances themselves are considered by FICO® Scores, credit data analysis consistently shows that the evaluation of revolving balances as a percent of available revolving credit is a much more powerful predictor of future credit risk, and therefore factors into FICO® Scores more heavily. While $5,000 is a lot of money, in this member’s case he still has over $50,000 in revolving debt on about $65,000 of available revolving credit limits. This is about 77% in revolving credit utilization ($50,000 total revolving balances/$65,000 total available revolving credit).

As such, the point change was modest after the $5,000 balance pay-down, given that the new credit utilization percentage is still high.

Furthermore, FICO® Scores only consider the account balance information (and associated derived utilization ratios) currently reported at the time the FICO® Score is calculated.  Historical balance and utilization information have no impact on a FICO® Score.

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Tom Quinn

Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.