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utilization -- pay down or off?

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New Member

utilization -- pay down or off?

I have a recent car loan with a 24k balance (26k original) with a $414 pmt that I can now pay off completely or just pay down. I pay off my Visa and AX completely every month, and have no other credit accounts with balances. Would it be better to pay off the auto loan completely, or just pay it down to, say, 5k so it stays open as an "good use of credit" factor?
Message 1 of 22
21 REPLIES
Established Contributor

Re: utilization -- pay down or off?

Somebody will chime in here with more detail but my understanding is that good FICO scores are reliant of a mix of credit including installment lones. People usually take a modest hit when an auto lone drops off their reports completely. On your cards, you are actually better off showing a 1-9% balance on half/-half of you CC accounts each month.
1-14-08....... TU=683, EQ=667, EX=666
7-04-08....... TU=688, EQ=678, EX=682.......
.......4 of my 5 cards and a new car later.
2/13/09 and forever EX 693
Message 2 of 22
Contributor

Re: utilization -- pay down or off?

Maybe I'm old school, but why wouldn't you pay off something that you can afford instead of paying interest? 
Keeping an unnecessary loan sounds like a rather expensive way to improve your credit score.
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3/27/09 Mortgage Application:
Me: EQ 691 EX 659 TU 714
DH: EQ 670 EX 677 TU 702
Message 3 of 22
Regular Contributor

Re: utilization -- pay down or off?

Yes, that is why they don't let people like us run the credit bureaus...we think logically!!!  We are dealing with that right now because we are ready to pay off my hubby's truck but don't want his score to drop.  Isn't it ridiculous???
Message 4 of 22
Established Member

Re: utilization -- pay down or off?

Yep - an auto loan dropping off "suddenly" will definitely mean a hit to your CR. We paid off an ATV 2 years early, which meant a 30-50pt decrease across the board.

It's sickening.
Message 5 of 22
Contributor

Re: utilization -- pay down or off?



danikasmom wrote:
Yes, that is why they don't let people like us run the credit bureaus...we think logically!!!  We are dealing with that right now because we are ready to pay off my hubby's truck but don't want his score to drop.  Isn't it ridiculous???



It IS ridiculous.  We recently bit the bullet anyway and paid off our car 2 years early.  Paying 9% interest was making me ill...   a lot more ill than a score drop, that's for sure.
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3/27/09 Mortgage Application:
Me: EQ 691 EX 659 TU 714
DH: EQ 670 EX 677 TU 702
Message 6 of 22
Regular Contributor

Re: utilization -- pay down or off?

First off, the answer depends on whether you are long or short on credit scoring. As we pay off loans etc, our score may dip a bit, but then picks up, and goes back up again.

For some people (like me at this moment) are looking for short term gains to get a better interest rate, qualify for a mortgage, refi, etc... and thus these short term drops hurt our goal of achieving one of the previous goals. So we will try and maximize the ideas we find on here to better our score in the short term.

For others (and hopefully all of us in the end), it is a marathon and not a short sprint. They do things now, that insure a payoff in the future (good scores and long history). And I would surmise paying off a loan (either early or on time) would be one of the goals of good financial responsibility.

Maybe this is a long and drawn out answer, but you have to decide what your goals are, short term and long term. Remember, if you fail to plan, you plan to fail.

IMHO, "IF" I had 24k sitting around, I would invest that money, as the car is a depreciating asset (ie it probably is not worth 24k right now, and won't be worth that ever), so there are better uses for that 24k...pay down your mortgage, buy some land...
Message 7 of 22
Contributor

Re: utilization -- pay down or off?



HinH wrote:
IMHO, "IF" I had 24k sitting around, I would invest that money, as the car is a depreciating asset (ie it probably is not worth 24k right now, and won't be worth that ever), so there are better uses for that 24k...pay down your mortgage, buy some land...

This is true... but it also depends on what the interest rate of the auto loan is.   We paid off the loan early and now put that car payment into savings, not a high yield account yet, but it will be soon.
I am a FIRM believer of not carrying debt.  Period.  The only interest I plan on ever paying will be for my mortgage... and that's not until I have a 20% or more down payment.
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3/27/09 Mortgage Application:
Me: EQ 691 EX 659 TU 714
DH: EQ 670 EX 677 TU 702
Message 8 of 22
Frequent Contributor

Re: utilization -- pay down or off?



danikasmom wrote:
Yes, that is why they don't let people like us run the credit bureaus...we think logically!!!  We are dealing with that right now because we are ready to pay off my hubby's truck but don't want his score to drop.  Isn't it ridiculous???


Wouldn't the TL still appear on your report as a paid and closed account, and still offer the benefit of credit history and account variety?
Repairing Steadily: 710, 706,702
Message 9 of 22
Contributor

Re: utilization -- pay down or off?



VistaV wrote:


danikasmom wrote:
Yes, that is why they don't let people like us run the credit bureaus...we think logically!!!  We are dealing with that right now because we are ready to pay off my hubby's truck but don't want his score to drop.  Isn't it ridiculous???


Wouldn't the TL still appear on your report as a paid and closed account, and still offer the benefit of credit history and account variety?


It should stay on the report for 10 years after opening the TL.
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3/27/09 Mortgage Application:
Me: EQ 691 EX 659 TU 714
DH: EQ 670 EX 677 TU 702
Message 10 of 22