One of our readers, Megan, had this question for us:

Hi,

If I always pay a little more than the minimum balance due on my student loans but each month the amount of the payments aren’t consistent (i.e. one month $200, next month $1000), will this hurt my credit score?

Thanks

Thanks for your question Megan!

The specific amount that you pay on a loan each month – whether it’s a student loan, a credit card or a mortgage does affect your credit score – but not in they way you might think. As long as you are paying at least the minimum each month, and you make your payments on time, then your credit score will never drop. How much those extra payments raise your credit score is up to you.

Just because paying different amounts each month won’t lower your credit score doesn’t mean you can’t be a little strategic about it. Every dollar you pay above the minimum payment does help to raise your credit score in the long run.

So, let’s say you have $300 extra to pay down your debt each month. You can put it on your student loan, or your credit cards. (This is just an example for our other readers, and assumes you have credit card debt) Financially, the smart thing to do is to put that $300 onto the loan with the highest interest rate, so that it costs you less in the long run.

However, if you are trying to raise your credit score, you would want to put that money into the credit account that is closest to the limit. Let’s say you had three credit cards, and a student loan. One of the credit cards is nearly maxed, the other two are in good shape, and you are halfway through paying down your loan. In this case, you would need to take any extra money you had, and pay down the card that is nearly maxed. That would raise your credit score more than paying an additional amount on your student loan.

If you have no real credit card debt, then you should do exactly what you are already doing – put the extra money into your student loan each month. Getting the student loan paid down as fast as you can will raise your credit score as well.

To sum up: paying random amounts on a loan each month (whatever you can afford to send) will never hurt your credit score, only make it better – As long as you make at least the minimum required payment!

Thanks again for your question!

Another one of our readers, Jon had an excellent comment that I wanted to share with you:

I recently have had some credit problems. I liked my credit cards waaay too much. I think the best thing you can do to recover is to allow yourself enough time to straighten everything all out. Nothing happens overnight, especially fixing a credit score.

Nothing happens overnight. Especially fixing your credit score.

I really wanted to take a moment, and say, great answer, Jon. Raising your credit score is a process that can take several years. If you have poor credit, and you are trying to raise your credit score – I am sorry to say that there is no instant fix. There are some things you can do to make your score go up quicker than usual though! I wanted to take a second and highlight some of those things:

You can get added as an “authorized user” onto someone else’s credit card account. This is risky, because you are literally putting your own credit score into that person’s hands. If they pay late, charge too much, or default on the loan, your credit is going to tank right along with theirs. BUT if you can find someone trustworthy who manages their credit well, then being an authorized user on their account will raise your credit score.

You can use a CD to secure a personal loan from a bank, and pay the loan back on time each month. This will raise your credit score tremendously if you can just do one of these a year until your credit score recovers. You can also use someone else’s CD as collateral if you need to, but again, there would have to be a very strong relationship there because if you default, they would lose their investment.

Consider a secured credit card, seriously. Having $200 in a savings account with your name on it is better than paying a bank $200 in fees just to carry a credit card with a high interest rate.

And lastly, something you should NEVER do when trying to raise your credit score:

Do not get a co-signer. Ever. If you agree to have someone co-sign a loan for you, every lender you approach after that will expect you to produce a co-signer. That traps you, and the person co-signing your loan, as you each progressively risk more and more because of bad past behavior.

If you can’t get a credit card, or a loan, consider trying the three suggestions above. Rinse, and repeat them for a while and your credit score will shoot up faster than you think. Also, remember to always pay your credit card bills on time, and not to charge more than 30% of your total available credit on any of your credit cards. Those are the secrets of successfully rebuilding your credit. Time tested, mother approved. Ok, maybe more like bank approved.

Have a question for us? Leave a comment below and we’ll answer it!

Keep Reading:

• Business Credit Cards Are Better than Consumer Credit Cards
• Some Questions About Reward Cards
• Credit Card Debt Settlement – How To Do It Yourself

This entry was posted on Tuesday, October 14th, 2008 at 09:45 and is filed under Reader's FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.