Paying off a auto loan early

[Anonymous]

I am leaving for Afghanistan in August. While gone I wanna pay $1500-$2000 a month on a vehicle and have it paid off by the time I return in August of 2011.

My question is what will the effect be on my credit? Will me paying it off so fast hurt the effect a completely paid off car on my credit would have?

I'm trying to build my credit so I can buy a house when I get back and right now its pretty crappy at 503. Thanks for any advice you can give me.

[llecs]

Thanks for serving!

The only difference in scoring would be the impact to your mix of credit. Once PIF and reporting $0, then FICO removes it from the mix, IF you have no other loans reporting. If you are paying on other loans (e.g. mortgage, SLs), then don't sweat it at all. The impact on your score can vary and is largely based on your scoring bucket. IME, I paid off my last and only installment (also a car). My TU dropped 5 points and EQ went up 7. In other words, it helped TU but hurt EQ. It's definitely a YMMV situation.

All other components relating to that TL, like utilization or length of history, are largely non-impactful. In other words, aside from your mix of credit, if you paid it off tomorrow or 5 yrs from now, the scoring impact would be the same. In fact, with regards to mix, you have to PIF anyway eventually per the terms so there's not much you can do anyway. Installment utilization is a tiny part of scoring that you probably won't notice it. And length of history is the same throughout up to the point it drops. Paying it off early will make it drop off that much earlier, but it will still report for 10 yrs from the point the balance reaches $0 and that'll help.

[MarineVietVet]

I also thank you for your service.

Llecs gave an excellent answer as always and I will only add that paying off any debt at any time for any reason should be #1 on anyone's list of things to do today. 

Being debt free trumps a score every time. But that's just my opinion.

Stay safe over there.! Make sure you keep your head AND your butt low!!! 

From a BK years ago to:
9/09 EX pulled by lender 802
3/10 EQ- 800
6/10 TU -772

You can do the same thing with hard work

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[ngerasimatos]

The good new is you are in the armed forces so getting approved for a home loan is a piece of cake.

As for your scores, handle those baddies while your gone, pay off that car loan, and stock up 3.5% for a down payment and when you come back, you'll be golden. 

[Lel]

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@ngerasimatos wrote:

The good new is you are in the armed forces so getting approved for a home loan is a piece of cake.

As for your scores, handle those baddies while your gone, pay off that car loan, and stock up 3.5% for a down payment and when you come back, you'll be golden. 

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I don't think this is accurate.  While there are loan programs available to those individuals who have served in the armed forces, approval still goes through the same underwriting scrutiny as any other mortgage loan.  If a person has credit profile that has significant and/or recent derogatory entries, he/she will not get automatic approval solely because of his/her service to the nation.  Some underwriting guidelines may be relaxed, but that doesn't make it "a piece of cake."

[Anonymous]

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@llecs wrote:

The only difference in scoring would be the impact to your mix of credit. ...

All other components relating to that TL, like utilization or length of history, are largely non-impactful. In other words, aside from your mix of credit, if you paid it off tomorrow or 5 yrs from now, the scoring impact would be the same....

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@MarineVietVet wrote:

Llecs gave an excellent answer as always and I will only add that paying off any debt at any time for any reason should be #1 on anyone's list of things to do today. 

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Hi, I'd just like to verify my understanding of your analysis, and to ask if the same answer would apply to me.  I'm buying a car tomorrow and am making a large down payment, about 60% of the total price (including fees and licensing, etc.).  I've not owned a car in over 10 years, and do not own a home.  My few credit cards don't have any balances other than small monthly expenses like gas, and my loans are for college loans, which I've been paying reliably.  The car loan will officially be for either 24 or 36 months, but I can easily make large enough payments to have it paid in one year.  Would, in my situation, it be better for my credit scores to pay it in one year, or instead of have lower payments for two or three years?  The interest is a neglible 1.9% annually.

[MarineVietVet]

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@Anonymous wrote:

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Hi, I'd just like to verify my understanding of your analysis, and to ask if the same answer would apply to me.  I'm buying a car tomorrow and am making a large down payment, about 60% of the total price (including fees and licensing, etc.).  I've not owned a car in over 10 years, and do not own a home.  My few credit cards don't have any balances other than small monthly expenses like gas, and my loans are for college loans, which I've been paying reliably.  The car loan will officially be for either 24 or 36 months, but I can easily make large enough payments to have it paid in one year.  Would, in my situation, it be better for my credit scores to pay it in one year, or instead of have lower payments for two or three years?  The interest is a neglible 1.9% annually.

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Hi and welcome to the forums.

If you can comfortably pay off that note in a year or even sooner without neglecting any other obligations then by all means do it. Just make sure there is no penalty for early pay off.

I may be in the minority but my opinion is that debt reduction/ pay off always comes before consideration of a score.

Nothing is better than being debt free.

From a BK years ago to:
EX - 9/09 pulled by lender 802
EQ - 7/06-663, 3/10-800
TU - 8/10-772

You can do the same thing with hard work