payoff car?

[Anonymous]

I'm sorry if this has come up before.  I'm new to this amazing site.

I will be applying for my first mortgage in a few months.  I got an Experian credit score of 737.  The site I used listed several things that have a positive impact on my score (no delinquent accounts, on time payments, available credit, etc.) and one thing that could have a negative impact.  Here's the quote from the website:

Although having installment loans, such as auto loans, on your credit report can help you build a solid credit history, having too many installment loans can bring your score down because they carry fixed monthly payments. Fixed payments are sometimes viewed by lenders as negative because they may affect your ability to meet other loan obligations. As you pay off your existing installment loans you may begin to improve your credit score

I only owe about $1900 more on my car.  Would it help or hurt my score to go ahead and take the money out of savings and pay it off?  I'd like to pay it and just start making that monthly payment to my savings account, but I don't want to do it if there's a chance closing the auto loan will hurt my credit.  Once I payoff the auto loan, the only installment loans I'll have are student loans.

Also, I only got the Experian score.  Is it important for me to pay to get the other scores?

Thanks so much for any advice.

edited for accuracy

Message Edited by lohanck on 11-28-2007 10:53 AM

Message Edited by lohanck on 11-28-2007 01:00 PM

[Anonymous]

If you have funds available, pay off the car and get some more credit established.  A few cards, maybe a personal loan.  If you've had the car loan for at least a year and half or two, that's definitely enough, stop paying interest and pay it off if you can.

[Anonymous]

Excellent, thanks.  I'll pay it off.

I already have several cards that get paid in full.  Are you saying now is a good time to apply for another one? 

What about the personal loan?  I should ask my bank for a loan I don't need?  Should my wife do the same thing?

[Anonymous]

---

lohanck wrote:

Excellent, thanks.  I'll pay it off.

I already have several cards that get paid in full.  Are you saying now is a good time to apply for another one? 

What about the personal loan?  I should ask my bank for a loan I don't need?  Should my wife do the same thing?

---

If you have several cards, than that would not be necessary.  I was considering your utilization.

What I like to do is a game with my credit union.  Take out a loan and bank it in a high yield savings.  Of course the interest you accumulate probably won't cancel out the interest you'll be paying on the loan, but you may get lucky.  Maybe even throw the funds in a Certificate of Deposit for a year.  And then make the payments and pay it in full.  I found wonderful results using that method.  It sounds like you're at a really good place with your score, this method may not be necessary.  It was for me, I didn't have any credit to build!

[Anonymous]

For what it's worth, back in August, I paid off 2 car loans, and my FICO score with TU dropped 35 points. That was a shocker.

Of course applying for a Chevron card accounts for some of those 35 points, but not a lot.

My scores have not recovered to back to that level.

[marty56]

Interesting, I dint think paying off a car loan would affect the credit score since it is not supposed to count as part of your credit utilization.  It dosent even show up in the FICO simulator. 

[Boswd]

If you are going to apply for a mortgage in a couple of months,  I would not go out and start looking for credit.   That is a big No No when looking to get a mortgage.

As far as your car is concerned, I personally wouldn't pay it off just on the off shoot it does affect your credit score and bring it below 700.   It still amazes me that is even possible.   The whole point of a credit report is for lenders to look to see how you have managed credit.  Hmmm this person takes out a loan and pays it back early,  hmmm NO Good. Unbelivable   Though I don't know if there is conceret proof of this, I wouldn't take the chance since the you have under $2,000 to go.   Though that would decrease your Debt to Income ratio which is very good.

If your cards are down and everything is caught up, I would just let sleeping dogs lie. and not do anything.     The only way I would say pay off the car would be if you are paying a very high interest rate, then that would be much better for you in the long run.

Just keep increasing your savings, and other reserves and save more for the down payment.  You should be in excellent shape.

[Boswd]

oh yes it is very important you know your FICO score, and not the score Experian gives you through their website.  

I would go on here and purchase a product that lets you view all three of your reports plus your scores, it's a little pricey but a necessity,  this is the only place you can get FICo scores, those are the ones lenders use.  

Message Edited by Boswd on 11-28-2007 03:01 PM

[Anonymous]

Thanks for the advice.  I went ahead and paid for my FICO scores, and now I feel even better about my mortgage prospects. 

It seems pretty stupid that my score can suffer from paying off a loan.  Has anyone else heard of this happening?  Now that I've thought of it, I'd really like to get the thing paid off.  I won't if it'll hurt my score, but that just doesn't make any sense to me.

[Anonymous]

The reason my scores dropped as I removed one of the various types of credit instrument out of the equation. It left me with only revolving credit. Have no mortgage instrument as it was paid off last year.

And if you look at the pie chart in the Credit Education section of the black menu bar you can see where credit mix accounts for 10% of your score.

I too thought that paying them off, would help my scores. Maybe my financial security, yes. But not score wise. But that was pre myFiCO forum days.