Dear Dr. Don,
I borrowed against the balance in my 401(k) plan. Does paying back the 401(k) loan improve my credit score?
Thanks, -- Robert Rejuvenate
Dear Robert, Sorry, the payments on a 401(k) loan aren't reported to the consumer reporting agencies, the credit bureaus that compile credit reports. It's the information in your credit report that is used to determine your credit score.
One of the advantages of borrowing from your 401(k) is that you don't have to have good credit to get the loan. You're borrowing your own money, so you're the lender. The downside is that the repayments you make to yourself don't help bolster your credit history, which would improve your credit score.
But it's not all bad news. Mortgage underwriting standards don't consider 401(k) plan loans as long-term debt, so a 401(k) loan won't affect your ability to finance or refinance a home loan.
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