Quick Way to Potentially Boost Your Credit if Your Student Loan Servicer Shifted
If you have a student loan, and your loan servicer has recently changed, which has happened for many recently, you might notice it negatively impacting your credit. This shift appears to have negatively impacted my credit. Below I'll go over how I checked what was wrong via Creditkarma & what I did about it.
How I Initially Checked What was Wrong
I like to keep watch of my credit regularly. When my credit score goes down by double digits, as I can see happened here, I like to know exactly why.
Image courtesy Creditkarma
I expanded those sections to find the following:
Image courtesy Creditkarma
In this case, it wasn't obvious, since the date of opening wasn't brand new, and the "hard inquiry" & lowering of average credit age didn't appear applicable, so I had to do a little digging.
Exploring Further to My Old Account
I explored further into my account history to see what was going on, checking my closed accounts & former utilization.
I went to my accounts page on Creditkarma and scrolled to the bottom.
Image courtesy Creditkarma
Near the bottom, I clicked on "Show 5 closed accounts". I then clicked on the student loan account, and saw the old details:
Image courtesy Creditkarma
There I saw a single account that had previously been around 55% utilization (based on me currently owing around $15k vs the highest balance of $27,534) in an account that had been opened in 2011.
Checking My New Accounts
I checked my current accounts on the Transunion accounts page:
Image courtesy Creditkarma
As I can see on Creditkarma, it split a single account on my credit report into 2 accounts, and the utilization was severely negatively impacted. Rather than having around 55% utilization, one of the accounts was 62% utilization and another was 102% utilization. I knew immediately that the 102% utilization was a big problem hurting my credit since prior to the new servicer. I already knew about the age difference before, which would be an uphill battle to try and change, but an easy fix would be to pay down part of that new 102% utilization loan.
How Foresight Helped to Correct the Issue
In order to assist with my ability to effectively budget, I have automatic payments from my primary checking account to multiple other accounts that I have that are for various purposes (i.e. mortgage payments, tithe, taxes for my rental property, etc.). While payments were deferred due to the student loan pause mandated by President Biden, I never stopped my automatic contributions from my primary checking account to a savings account I created with Synchrony (where I have 9 accounts under 1 online account, in part due to the interest being better than most [though not my best] and the flexibility of so many free accounts under 1 bank where I get up to 3 free wire transfers/month if desired) dedicated primarily to student loans and labeled as such. Because I already had an account designated for student loans, I earned interest on that account while building funds in it, and when I paid the student loan down, I could take directly from that account rather than taking from a general savings account. Also, because I never stopped contributions to the account, I was never tempted to overspend from my checking account based on more available funds than typical, so a transition back to required student loan payments will be much easier.
How I Corrected the Issue
The main problem with the % utilization was being over 100%. I actually left most of the funds in the bank account I have dedicated to student loans, but did bring it under the 100% threshold. It wasn't as simple as you would think, however.
When I went to "make a payment", rather than using the default payment, I selected "Pay by Group", though it may be termed differently on other loan servicers than Nelnet.
Image courtesy Nelnet
Image courtesy Nelnet
Only by doing that could I be sure that I was paying down the account that would have the most positive benefit on my credit score.
Caveat on Creditkarma Score
While I find Creditkarma to be a useful tool, keep in mind they have a Vantage score which you shouldn't pay attention to much unless it decreases. For a more accurate score to what lenders will be pulling, I recommend Experian.com or a number of other options here, though keep in mind that often there won't be as many credit report details as on Creditkarma, and that often you'll hit a paywall if trying to get detailed like on Creditkarma's reports if checking more than one bureau at once on the same website.
Image courtesy Creditkarma