Pay Auto Loan Early

[wedoza]

Got 6 Month's of History. Fico score is 712.I'm in about 11,000 dollars in debt. If I pay off my auto loan of about 10,000 dollars real early compared to paying it off month for 72 month's, will that still increase my score instantly or what?

[Anonymous]

No, in fact paying off an installment loan will drop your score. It will eventually go back up again, but it drops for some FICO known reason when the loan is paid off.

[llecs]

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Pappy214 wrote:
No, in fact paying off an installment loan will drop your score. It will eventually go back up again, but it drops for some FICO known reason when the loan is paid off.

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There certainly is some debate about that in here. Soon after joining these forums I looked at nearly every post tallying the effects of paying off a loan product of some sort. It was difficult to separate the posts as something as slight as a change in revolving CC could change the score. But I did find 6 posts of those who paid off a loan who tracked the before and after and reported what happened. Of the 6, 2 experienced an increase, 2 no change, and 2 saw a drop in their scores.Of the two that had a score hit, the damage was around 10 points, give or take a few.

Logic dictates that paying off a loan, especially in a lump, would lead to an increase. Besides, the minor factor of util on loan accounts improved. You'd think you would see an increase. I guess FICO likes to see an "open" loan, as they like to see open revolving and charge CCs.

[Anonymous]

Check with the lending company first to make sure there's no penalty for early payment on the loan.  Companies will write that into the loan agreement to make sure they make a profit off you even if you pay the loan of early and avoid some of the interest.

[Anonymous]

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@Anonymous wrote:
No, in fact paying off an installment loan will drop your score. It will eventually go back up again, but it drops for some FICO known reason when the loan is paid off.

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When you have installments loans, lenders see that you have a long term commitment, and they can use it to grade your creditworthiness by how you manage the account. 

Since the amount you pay is controled by the lender, meaning you pay the same amount every month, it is a better indicator than credit card/unsecure credit. 

Unsecure credit can fluctuate. One month the balance can be high and next month paid off, etc. So it may not be as good of an indicator as installment payments.

I read this up somehwere when I graduated form DMP. My scores dropped by 50 points and the DMP company couldn't explain why. I think they know but don't want to tell clients, because the purpose of DMP is to improve credit and if they tell you your scores will drop when you complete the program, most people won't do it.

Anyways, that was the reason for my score drop from DMP. I figured it may be the same for auto loans or any other installment loans. I think for spme people with no changes in their scores, is due to other factors on their overall credit, such as overall improvement of debt, etc. Hope I'm making sense here