Why did paying off a car only up my credit two points?

[awp317]

OK so this is via credit karma to use the info with a grain of salt. But october was a good month and my LO for my mortgage reccommended paying off one of my cars to reduce my DTI % and I paid off the loan. I got the letter last week about it being paid and the credit karma report update today finally showed it as paid. But only raised the score 2 points? I still have another car loan open so I wasnt worried about going to only revolving in paying the one off. But anybody have any insite? I would think a large chunk of debt coming off would be good. It seems that as long as you have income to support it, Nobody cares about how much installment debt you have, only revolving debt. Kind of a fault in the system IMO. 

[enharu]

First of all, its credit karma. Ignore the scores.

Secondly, your scores are just one of the many things lenders look at. Don't just worry about your scores. Focus on what's in your CR and also your income instead and work on that. Pay off any debt you can; no point paying interest fees just for a few points boost in scores.

[Walt_K]

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@awp317 wrote:

OK so this is via credit karma to use the info with a grain of salt. But october was a good month and my LO for my mortgage reccommended paying off one of my cars to reduce my DTI % and I paid off the loan. I got the letter last week about it being paid and the credit karma report update today finally showed it as paid. But only raised the score 2 points? I still have another car loan open so I wasnt worried about going to only revolving in paying the one off. But anybody have any insite? I would think a large chunk of debt coming off would be good. It seems that as long as you have income to support it, Nobody cares about how much installment debt you have, only revolving debt. Kind of a fault in the system IMO. 

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They do care.  This is why they look at DTI%.  It's just a separate inquiry and not part of your credit score.  

[Kratos-TM]

My FICO score went up 3 points for every car I paid off. It doesn't really care about installments unless you don't have any at all.

[Revelate]

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@Walt_K wrote:

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@awp317 wrote:

OK so this is via credit karma to use the info with a grain of salt. But october was a good month and my LO for my mortgage reccommended paying off one of my cars to reduce my DTI % and I paid off the loan. I got the letter last week about it being paid and the credit karma report update today finally showed it as paid. But only raised the score 2 points? I still have another car loan open so I wasnt worried about going to only revolving in paying the one off. But anybody have any insite? I would think a large chunk of debt coming off would be good. It seems that as long as you have income to support it, Nobody cares about how much installment debt you have, only revolving debt. Kind of a fault in the system IMO. 

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They do care.  This is why they look at DTI%.  It's just a separate inquiry and not part of your credit score.  

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+1.  FICO doesn't do a substantial calculation on it (though they may do something smaller, it's not at the level of revolving utilization calculation) but DTI matters a great deal during underwriting. 

Paying off a car loan can make room for DTI and it's basically what I'm doing with my own for my absurd mortgage I'm likely going to need to try to qualify for; however, there's reports from many lenders that if your car is within 10 months of being paid off it won't count anyway.  May not apply to all lenders admittedly, if the money isn't needed for downpayment or asset reserve it's a decent strategy though some users have reported a FICO drop of a few points when they drop below some threshold of open installment loans.

[awp317]

What i just find interesting is a 38k loan showing as paid off has far less affect on my score than a 10k credit card showing as paid. 

[FlowerChild7275]

Be happy your score actually went up.  Mine actually dropped several points.  At the time, I only had to accounts in my name... my mortgage and my auto loan.  My credit score was just above 650.  Apparently closing down an account that was well established and in good standing actually hurt me. When I refinanced with my credit union and they paid off my original auto loan lender, my score took a nose dive. Granted, at the time I was also in the market to trade so I am keeping in mind that my credit was checked by 3 auto finance companies as well (which also dinged me point-wise), but after it was all said and done... my score now sits at 634 and isn't moving.