Good for Credit Score to Repay 401(k) Loan?

By Dr. Don Taylor, Ph.D., CFA, CFP,

Dear Dr. Don,

Continue Reading Below

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.

More On This...

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.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

Copyright 2012, Bankrate Inc.