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briangel

403(b) Loans And Credit Scores

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If I take a loan from my 403(b), how will it affect my credit score? Will it appear on my credit report as a loan? Will it jeopardize the amount or interest rate I may qualify for for a mortgage?

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If you borrow from your 403b or 401k, you are borrowing against your own money. It does not affect your credit score. But if you fail to repay the loan in a timely manner or just do not repay it, the defaulted loan will be reported to the IRS and you will owe taxes & a 10% penalty. The other thing to consider is that if you borrow, you will be taking money out of the market. If your money was earning and average of 8% per year and you had a 6% interest rate on the 403b/401k loan, the real cost of that loan is the lost earnings plus the interest rate of the loan, a total of 14%. In my opinion, I would only take a loan if it were a last resort. It will not affect your credit score.

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