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Question for the Money Doctors

Question submitted on Sep 13, 2014.

Question

I have $132000 in student loan debt. I have a home that I purchased in 2006. I have moved because of my job and have been renting the home for the past five years. Due to some pat late payments my credit score is fair. I have six months before I begin repaying my student loans. Would it drastically Jmprove my score if I were to sell my home? I know it would greatly reduce my debt to income ratio. Please advise me. Thank you.

Answer

The presence of a mortgage loan does not affect your credit nearly as much as the timeliness of the mortgage payments.  So, even though late payments do create a negative impact on your rating, completely eliminating the loan will not necessarily have the opposite, positive effect. 

Make sure to not accumulate credit card debt which can significantly lower your credit score.  If you do sell your home, consider using the proceeds to pay down any outstanding credit card balances you may have.  However, the existence of student loans do not have much impact on credit score, so just make sure to stay current when you begin repaying the loans.  Payment history will have the most impact on credit score from a student loan.


For additional information visit http://www.360financialliteracy.org/

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