Paying it off immediately wouldn’t help your credit score. You’re better off to try to refinance to a better fixed rate. I know that typically college loans can be financed at pretty low rates. I know that my wife was able to get hers down to 3.4% or something like that. That was a few years ago so obviously it would be higher than that.

I’d also suggest you use your credit card regurarly. As long as you have self control it’s actually a good idea to use a credit card. We have no annual fees, pay it off every month, and get cash back. If our minds, we’re actually making money from the credit card company. Plus it looks good on our credit.

I agree though, the credit world is very tricky. You’ve got to have credit to get credit. I’ve always joked with my parents that they’d have trouble getting a loan.. house is paid off, pay cash for cars. It’s definetly good to have at least some debt constantly going to prove you can make payments.

I noticed my credit improved when I started using an American Express card a few years ago. Perhaps because it forces the user to pay it in full every month.

What I would do with the 7.14% student loan is to open a new credit card with those 0% balance transfer offers. You can pay it all off by the deadline to eliminate your debt interest free. At the same time, the additional credit card will improve your credit history as time goes on. Of course opening up alot periodically doesn’t help, but since you don’t have alot of credit history, it might be ok to open a bunch at once, so in 18 months from now, those cards won’t be a negative mark on your record anymore. They then inturn help your credit because after 18 months, you’ll establish a longer credit history and have a lot of credit available. If you don’t spend/use it, then your debt/credit available ratio would be low, which will also help increase your credit too.

There have been some really good replies so far, but I’ll add my experience too.

I was in a similar situation about 3 years ago. I arrived from England in 1999, didn’t need credit and didn’t want it anyway. A couple of years later, I realized that I needed a credit history and did some research. Here’s what I did (that got me up to to a FICO of about 700 in a year). I have included some general advice too.

1) Got a crappy VISA card with $250 limit and $75 annual fee! After one year they waived the fee..

2) Got a SECURED credit card through my bank. No annual fee. They took $300 of my money and gave me a $300 credit limit. Make sure that they report the account to credit agencies – they usually do.

3) Bought a car and financed a small portion. While others were getting 2.9%, I got 7.9%. Pay off loan regularly, as agreed.

4) Paid off all credit line accounts every month – carrying a balance on credit line doesn’t help your score (I’ve been told that by a few financial advisors).

5) Try and not use too much of your credit – like under 30% if possible. Tricky when you only have $500 of credit, but it’ll get easier once they start to trust you.

6) Get 2 or 3 credit cards, keep them (age of accounts is a critical score measure), and every six months or so you’ll find your limit increasing. If it doesn’t after some time, then call the credit company and ask them if they’ll increase it.

7) Do not go crazy with store cards. The temptation to get that 10% off is high, but don’t do it if you’re planning on needing a good score in the next couple of years. It will cost you more in the long run with a higher interest rate.

8) Do not open new accounts all the time, and don’t go for mortgage pre-approvals unless you’re serious about it. Just check your FICO score every 6 months… These “inquiries” can count against your score. Someone looking for more credit is more likely to get into more debt! That’s the theory anyway… Your FICO score “inquiries” do NOT count against you.

In general, you should have lots of old, established credit (but not “too” much, whatever that is), not be using the bulk of it, be paying it back on time ALWAYS, and not be looking to borrow more.

FYI – I’ve got about 5 years of credit history now and my FICO is 785. After 2 or 3 years I was in the 700s.

PS: I don’t think you can do a balance transfer directly. However, there are ways around it. Cards from Citibank will allow you to send yourself a check, and there is no fee for your balance transfer. For other cards/banks, there is a fee and you can only send it to another credit card. So what you can do is transfer $ to your citi card, then send yourself a check for that amount.

Lickitysplit: The reason why I suggested the 0% balance transfer is because it will save you $ on interest. Of course the balance transfer would not increase your credit, but having one or more cards being paid on time for a year would. Those additional card(s) will make your credit history longer. The length of your credit history is one factor in determining the score. Like I discussed before, one other factor is the debt to available credit ratio. The lower that number is the better, which will also increase your score. In order to have that ratio low, you would have to have alot of available credit. Only way to do that is to get more credit cards. Remember, this method I’m suggesting assume you pay off your loan w/in the period of that 0% offer. If you don’t, then they would charge you for the interest during that period after the into period is over. So be careful.

I’m almost certain it’s additive. Because accord to my credit history, it say I have 19-20 years of credit history, and I’m only 26. I do have several cards. So it only make sense that it’s additive. Remember, new cards/loan only hurt your credit the first 18 months, after that, it becomes helpful to your credit. So if you must open new cards, I suggest open all you would open in one shot, so 18 months from now, there would be no negative marks on your record. If you stagger them, then that period would be much longer.

Additional *credit* is additive, but adding more cards just makes the average age of your credit less, which is bad.