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Need some help--Want to pay off loans, but what about FICO???

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Anonymous
Not applicable

Need some help--Want to pay off loans, but what about FICO???

I am worried about how paying off 2 loans will effect my Fico Score.

I know paying off these loans may negatively effect my score in a few ways:

#1: It will shorten my credit history. I have seen arguments on weather or not
open/closed accounts are weighed equally, and I have come to the conclusion, that open accounts are weighted more then closed accounts in the Fico formula.

#2: I will have no more Open Installment accounts on my report. Every Installment account will be paid--so my only open accounts will be Three Revolving accounts (credit cards).

How much of a score drop do you think I will take if I pay these off? I will be essentially killing off all installment Debt, so Won't this cause me to loose points because I don't have a "Mix of Credit"?

Please help! I suppose I could keep paying these loans but slowly over time, but quite honestly I am sick of paying interest, and I hate the principle of having to pay interest in order to get my fico score higher. I do not have to do that with Credit cards...I can wrack up a balance, get the balance to report, and then pay off the card in full without accruing any interest charges.
Message 1 of 5
4 REPLIES 4
MidnightVoice
Super Contributor

Re: Need some help--Want to pay off loans, but what about FICO???



rifleman wrote:
I am worried about how paying off 2 loans will effect my Fico Score.

I know paying off these loans may negatively effect my score in a few ways:

#1: It will shorten my credit history. I have seen arguments on weather or not
open/closed accounts are weighed equally, and I have come to the conclusion, that open accounts are weighted more then closed accounts in the Fico formula.

#2: I will have no more Open Installment accounts on my report. Every Installment account will be paid--so my only open accounts will be Three Revolving accounts (credit cards).

How much of a score drop do you think I will take if I pay these off? I will be essentially killing off all installment Debt, so Won't this cause me to loose points because I don't have a "Mix of Credit"?

Please help! I suppose I could keep paying these loans but slowly over time, but quite honestly I am sick of paying interest, and I hate the principle of having to pay interest in order to get my fico score higher. I do not have to do that with Credit cards...I can wrack up a balance, get the balance to report, and then pay off the card in full without accruing any interest charges.

I have FICO scores in the High 700s with NO open installment loans other than mortgage.
 
I have done the actual calculations, and my average age is based on all my accounts, open and closed.
 
I don't think paying off loans will have much of a negative impact
The slide from grace is really more like gliding
And I've found the trick is not to stop the sliding
But to find a graceful way of staying slid
Message 2 of 5
Anonymous
Not applicable

Re: Need some help--Want to pay off loans, but what about FICO???

As long as you have a year of history on the loans I don't think it will matter. I heard that some people that had paid off a long term mortgage had score drops after being closed. Auto, personal, ect... I don't believe score the same way.

This could be another situation. Lets say someone has 2 credit cards, and 2 loans. Totaling 4 open accounts. If you closed the loans you would only have 2 open accounts. I can see dropping to 2 open accounts effecting scores. It's just an opinion, but I think it is best to never drop below 3 open accounts at any time.

Now if one is a mortgage loan, not sure. I gained points with an installment loan, and FICO said, it is good to keep this loan open because people with open loans are lower risk. I got tired of paying interest and PIFd it. I gained 3 points by paying it off. So sometimes it is better to reduce your number of debts as well as number of UTL. Since you already have 3 credit cards, I think you will be ok.

But what difference does it make if you are paying interest?? In my opinion, money before scores... with in reason.

If you pay and close, if not a mortgage installment my guess is that you will get a score increase from one, and no score increase from the other, but this is just my guess.

All of our CRs react differently but I have never lost points by closing a loan.

Message Edited by ilovepizza on 02-04-2008 12:24 PM
Message 3 of 5
Anonymous
Not applicable

Re: Need some help--Want to pay off loans, but what about FICO???

Thanks Ladies, I appreciate it. I currently have 5 open accounts--3 revolving, 2 installment. The loans are Student Loans--want to pay them both off by December.

Didn't you just get a car loan Midnight? You should have at least 1 installment account now, right? Or is it not reporting yet?

I agree--money should trump FICO. I don't know when I will buy a house, but it probably won't be for another 2 years at least. Hopefully any drop in fico by paying off loans will be corrected in 2 years.

I'm looking forward to being free of debt-based payments!--At least ones for now that do nothing to increase my net worth (like a mortgage).
Message 4 of 5
Junejer
Moderator Emeritus

Re: Need some help--Want to pay off loans, but what about FICO???



@Anonymous wrote:
I am worried about how paying off 2 loans will effect my Fico Score.

I know paying off these loans may negatively effect my score in a few ways:

#1: It will shorten my credit history. I have seen arguments on weather or not
open/closed accounts are weighed equally, and I have come to the conclusion, that open accounts are weighted more then closed accounts in the Fico formula.

#2: I will have no more Open Installment accounts on my report. Every Installment account will be paid--so my only open accounts will be Three Revolving accounts (credit cards).

How much of a score drop do you think I will take if I pay these off? I will be essentially killing off all installment Debt, so Won't this cause me to loose points because I don't have a "Mix of Credit"?

Please help! I suppose I could keep paying these loans but slowly over time, but quite honestly I am sick of paying interest, and I hate the principle of having to pay interest in order to get my fico score higher. I do not have to do that with Credit cards...I can wrack up a balance, get the balance to report, and then pay off the card in full without accruing any interest charges.


It certainly won't shorten your credit history, unless it was totally deleted from your CR.






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