Payoff or not?

[Anonymous]

Hi,

I have a auto loan, which has been opened July 2011 from Ally Bank and pay $2,500 in every month.

I want to buy a townhouse in this June so I need to decrease the personal debt to meet back DTI.

If I keep the payment of $2,500 until June, the auto loan will be paid off 100%.

But I want to pay it off and remove from my debt list in January.

Which one is better for building up my credit score? fully paying the remaining balance now or keeping my payment of $2,500/month?

Please advise me.

[pizzadude]

Since it is an installment loan, you won't get a FICO boost by paying it off.

However if it will lower DTI as needed for a mortgage I would just keep payin it down.

[Anonymous]

Pay it off now if have the ability,,  When I paid off my last couple auto loans I gained a few points, SW shows I gained 8 last September when I paid off FMCC ..

.

[Revelate]

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@pizzadude wrote:
Since it is an installment loan, you won't get a FICO boost by paying it off.

However if it will lower DTI as needed for a mortgage I would just keep payin it down.

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Pretty much, minimal benefit if any short-term.  You might get a slightly better score in the long run if you left it open (longer age of of the tradeline), but if you're clearing the way for a DTI calculation on a mortgage, pay it.  Especially as the mortgage > car loan from a scoring, or certainly underwriting, perspective anyway.

FWIW paying $2500 a month post-tax on a car is pretty impressive, nicely managed.  I'm sort of surprised that the mortgage underwriter was complaining about DTI in that case based on the income required to hit that post-tax (and post living expenses and everything else), vs. the amount you have left on the auto note.

[Anonymous]

Question- does an installment loan that's closed PIF keep accruing towards AAoA?

Regardless, what about paying it down to $100 or something. I've always toyed with that idea, but usually just close it so I don't forget about it.

EDIT: Corrected as per next post. Thanks for the correction!

[MarineVietVet]

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@Anonymous wrote:

Question- does an installment loan that's closed PIF keep accruing towards AAoC?

Regardless, what about paying it down to $100 or something. I've always toyed with that idea, but usually just close it so I don't forget about it.

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Do you mean AAoA? Your AAoA is the sum of the ages of every account (except CA collections and public records) on your report, whether open or closed. 

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[webhopper]

I would say pay it down to where there are less than 10 payments remaining on the installment. If there are less than 10 payments remaining, they don't usually count it in to your DTI, if you are already working with a mortgage broker or lender, I would call an ask, but don't start the application just yet.

[Revelate]

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@webhopper wrote:
I would say pay it down to where there are less than 10 payments remaining on the installment. If there are less than 10 payments remaining, they don't usually count it in to your DTI, if you are already working with a mortgage broker or lender, I would call an ask, but don't start the application just yet.

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Interesting, good to know, and many thanks for sharing!