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In reading This Question about UK student loans I cam across several answers that state that student loans do not impact credit score beyond limiting the amount of disposable income used in the loan size calculations.

This directly conflicts with what I was told when applying for a mortgage, as my wife carries over 300,000.00 USD student debt, and her score was impacted by 100+ points in a 13 month period (The previous data point was a car purchase that ended up in my name due to her lack of income, her score dropped from 828 to 694 during that time).

During this time, she acquired no new debt outside the student loans, and did not change her spending habits concerning credit cards. The usual impact factors on FICO (length of history, black marks, debt utilization ratio, etc.) did not noticeably change, as we researched what we needed to do for applying for a HELOC in advance, and stuck to it fairly well.

As per comments, her student debt did increase, to the tune of ~60k USD between the 2 loan applications. This is done through loan installments per semester at school, and the final 300k USD figure is after the final installment (meaning it would have been around 240k USD at the time of the car purchase).

My question is : Does anyone know if there is a certain point where student debt begins to impact credit score/creditworthiness? If so, what are the criteria?

GOATNine
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    There's no conflict here. The answers you refer to are about student loans in the UK, which are quite different from student loans in the US, and therefore have a different effect on your creditworthiness. – Mike Scott Apr 25 '18 at 15:07
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    $300k in student loans is staggering - and on top of that she doesn't have enough income to borrow money for a car? – D Stanley Apr 25 '18 at 15:09
  • What changed on her credit report between the 828 and 694 scores? Did she take out the student loan during that time? Did she have some late payments? – Ben Miller Apr 25 '18 at 16:11
  • Did she have late payments? Maxed out credit cards? Closed accounts? While $300k in student loan debt is an incredible sum, on its own I wouldn't expect it to impact a credit score much. – Hart CO Apr 25 '18 at 16:11
  • The truth is, no one really knows "what the criteria" are, because FICO's score algorithm is a closely held secret.

    Incidentally - the car loan score could have been a different FICO score than the one used for the mortgage app, which can account for the significant difference. FICO actually has a bunch of different scores - a general score (FICO 8), credit card scores, auto loan scores, and mortgage scores - all will be different with the same data. It just depends on which score the lender uses. You might consider visiting the MyFICO site for more info on the various FICO scores.

     – Norm Apr 25 '18 at 17:10
  • As it is, she carries about 20% utilization on her credit cards at reporting each month. The student loans are take in installments, so she accumulated roughly 60k USD increase in debt. There were no black marks on her credit report either time (hence the 820+ on the car note). Her income at the time was intermittent, and related to extracurricular school activities (my controls engineering job was our stable income at the time). In particular, we made sure to close no old accounts and limit our card usage before applying for a HELOC. – GOATNine Apr 25 '18 at 17:11
  • @MikeScott the sources referenced were not UK specific in many cases, which is why I posted this question. I'm sorry to imply that I was using wrong sourcing. – GOATNine Apr 25 '18 at 17:12
  • @norm I understand that, but the usual things to look out for didn't significantly change during the interim period, which is why I accepted the financial advisors answer as to why her score decreased. (This advisor was the one managing our application for a HELOC). – GOATNine Apr 25 '18 at 17:19
  • "the sources referenced were not UK specific in many cases" ... how do you figure that? – CactusCake Apr 25 '18 at 19:49
  • How many hard pulls were done during that time period? – mhoran_psprep Apr 25 '18 at 20:00
  • @GOATNine - I'm just pointing out that comparing that earlier score to the one the mortgage lender pulls is almost certainly an apples/oranges comparison. It not unusual for the mortgage FICO score to vary by as much as a hundred points from a FICO 8 score or an auto enhanced score, with no changes at all. Also consider that the auto enhanced FICO score goes from 300-900 points while the mortgage score goes from 450-850 - completely different animals. – Norm Apr 25 '18 at 21:40
  • Again, I would recommend heading to the site I mentioned above, you can get ALL of the relevant FICO scores there, (that I mentioned above) and you will see how much variation there is from one score to another. – Norm Apr 25 '18 at 21:43
  • @cactuscake In what way does attacking the first line of a valid question in the comments when it has no bearing on the question itself improve the question? I see no answers forthcoming, just nitpicking and aggravation. I could remove that reference and the question would stand perfectly valid. It's to my understanding that creditworthiness is not jurisdiction-specific. If I'm wrong about that, *POST AN ANSWER*. – GOATNine Apr 26 '18 at 11:18
  • @Norm I had checked that site before posting this question, as you pointed out, the formula is notoriously black boxed, and relevant numbers concerning thresholds for things like that are hard to find. The credit scores referenced were calculated using FICO8 in both cases (according to the credit reports we were given), and were taken as the median of Experian/Equifax/Transunion scores (Transunion's score in both cases oddly enough). The only noted difference on the reports was 'volume of student debt' reported where you would see things like 'lack of history'. – GOATNine Apr 26 '18 at 11:25
  • Huh? I didn't attack your question. I'm trying to figure out how you concluded that the linked question wasn't UK specific, and why you think the answers to that question would conflict with what you were told about your spouse's (US) student loan. As far as I can see, they don't, because they are talking about a different type of debt. Creditworthiness, as determined by FICO models, may not be assessed differently based on jurisdiction, but it certainly is assessed differently for different types of debt. – CactusCake Apr 26 '18 at 12:27
  • Also, if the first line of your question "has no bearing on the question itself", then why is it there? This only adds confusion. Perhaps it would indeed be better to take out the first paragraph and the first part of the next sentence, to truly make this a standalone question. – CactusCake Apr 26 '18 at 12:31
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    @GOATNine - Thank you for the clarification. I think one thing pushing down scores may be the balances increasing if she has not started paying it down yet. Also another factor to consider is if she only had a few accounts to start with, even if they were well aged, the SL's tend to add multiple lines at once and can really pull down your Average Age of Accounts. – Norm Apr 26 '18 at 12:54
  • @norm if you formed those comments into an answer, I'd be hard pressed not to accept it. – GOATNine Apr 26 '18 at 12:56
  • I'll try to formulate this all into an answer later today. – Norm Apr 26 '18 at 13:02

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Well, its just not as simple as the loan amount being over a threshold. The FICO model is very complex and interactive. It sounds as if you wife may have a somewhat "thin" file. Often a thin file may score fairly high, but will drop more drastically when new accounts are added or credit card balances rise. New accounts added will reduce your Average Age of Accounts - ordinarily a new account may not have a large impact on this metric, but Student Loans tend to add a bunch of individual loans rather than one large one. With a thin file this can reduce a 10+ year AAoA down to less than one year all at once. That can take a good amount of points.

Another factor that can add downward pressure is that if one is not yet started to pay down those loans, the interest causes the balances to rise - above what the original loan amount was. This is similar to going over your limit on a credit card account, and FICO can hit you pretty hard for it.

To help recover her score I would look at maximizing her credit utilization on her credit cards. The easiest way to do that is to use the "AZEO" method - All Zero Except One. On the one card that shows a balance, you want to stay under 10% of its limit when the statement closes. And if its feasible, start paying the school loans down, even though its not required yet.

Norm
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