Applying in June-- doing my research

[Nikki2015]

I have been on a long journey to prepare for a new home. A couple years ago, I had no credit at all, which to some lenders is just  like bad credit.  I was able to build new clean credit through cards and personal loan payments and purchased a brand new car. I plan to pay down my car loan to next to nothing in May using some savings in hopes of a larger bump in my credit rating before applying in June. My car loan is my only major  debt. I have $16,000 in available credit with about 3-5 percent utilization at any given time. I can easily pay this balance off. 

My my question is will my credit score improve with a lower car loan balance? Also if I chose to pay the loan in full will it hurt my score? I read on a post that paying a loan in full dropped someone's score. 

[Anonymous]

"Also if I chose to pay the loan in full will it hurt my score?"

It will, because a credit line with some age will be closing.  Probably not all that many points though,  so if you have solid score and can absorb the pt loss without effect, that's what I'd do.  I'm thinking anytime you pay something off is good.  Not having that payment is a positive thing on your DTI.  

[Anonymous]

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@Nikki2015 wrote:

I have been on a long journey to prepare for a new home. A couple years ago, I had no credit at all, which to some lenders is just  like bad credit.  I was able to build new clean credit through cards and personal loan payments and purchased a brand new car. I plan to pay down my car loan to next to nothing in May using some savings in hopes of a larger bump in my credit rating before applying in June. My car loan is my only major  debt. I have $16,000 in available credit with about 3-5 percent utilization at any given time. I can easily pay this balance off. 

My my question is will my credit score improve with a lower car loan balance? Also if I chose to pay the loan in full will it hurt my score? I read on a post that paying a loan in full dropped someone's score. 

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I thought that when I payed off my car loan that I would see a score bump since I had shown that I am able to honor a loan committment and pay the vehicle off within the contract terms. Well... my score dropped about 18-20 points per buraeu when the loan closed out. (It was my only installment loan on my credit report). YMMV though.

[frugalQ]

if your car is your only installment loan, i would think twice about closing the account early....  it will have an adverse affect on your credit score.  i'm not even sure if reducing the balance will give you any sizable boost.  if you are trying to boost scores, you should reduce your credit card utilization.

[skigirl916]

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@Anonymous wrote:

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@Nikki2015 wrote:

I have been on a long journey to prepare for a new home. A couple years ago, I had no credit at all, which to some lenders is just  like bad credit.  I was able to build new clean credit through cards and personal loan payments and purchased a brand new car. I plan to pay down my car loan to next to nothing in May using some savings in hopes of a larger bump in my credit rating before applying in June. My car loan is my only major  debt. I have $16,000 in available credit with about 3-5 percent utilization at any given time. I can easily pay this balance off. 

My my question is will my credit score improve with a lower car loan balance? Also if I chose to pay the loan in full will it hurt my score? I read on a post that paying a loan in full dropped someone's score. 

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I thought that when I payed off my car loan that I would see a score bump since I had shown that I am able to honor a loan committment and pay the vehicle off within the contract terms. Well... my score dropped about 18-20 points per buraeu when the loan closed out. (It was my only installment loan on my credit report). YMMV though.

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Closing an installment loan will affect your credit score if you don't have another installment loan already. In this case, OP has student loans, which are also installment loans.

That said, OP will not see a RAISE in his score by paying it off. I suspect there will be no impact at all. But his DTI will improve.

[frugalQ]

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@skigirl916 wrote:

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@Anonymous wrote:

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@Nikki2015 wrote:

I have been on a long journey to prepare for a new home. A couple years ago, I had no credit at all, which to some lenders is just  like bad credit.  I was able to build new clean credit through cards and personal loan payments and purchased a brand new car. I plan to pay down my car loan to next to nothing in May using some savings in hopes of a larger bump in my credit rating before applying in June. My car loan is my only major  debt. I have $16,000 in available credit with about 3-5 percent utilization at any given time. I can easily pay this balance off. 

My my question is will my credit score improve with a lower car loan balance? Also if I chose to pay the loan in full will it hurt my score? I read on a post that paying a loan in full dropped someone's score. 

---

I thought that when I payed off my car loan that I would see a score bump since I had shown that I am able to honor a loan committment and pay the vehicle off within the contract terms. Well... my score dropped about 18-20 points per buraeu when the loan closed out. (It was my only installment loan on my credit report). YMMV though.

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Closing an installment loan will affect your credit score if you don't have another installment loan already. In this case, OP has student loans, which are also installment loans.

That said, OP will not see a RAISE in his score by paying it off. I suspect there will be no impact at all. But his DTI will improve.

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there's a strong possibility of decrease...at least on EX.  I know credit files are all unique, but I try to tell our story as much as possible.  My hubby paid off his truck in the middle of building a house, and his EX scores decreased by ~15 pts.  He still has a morgage, student loans, and my car loan reporting as open.  No other major changes between credit pulls except the closing of his car loan.

if OP's DTI can qualify him with the car loan, recommend paying it off immediately after the loan closes