New home loan and paying off installment loan

frugalQ · ‎09-12-2014

Hi Guys! It's been a while since I've posted...I'm back.

A lot of development on my home buying journey. Was under contract on a new build, but we cancelled the contract as we were not happy with the builder. Now, we are under contract with another builder with house to be complete in march 2015. Now, we've run into a potential deal breaker, and I'm a nervous wreck. I posted in FICO scoring forum, but I also wanted to post here to get a mortgage perspective.

On hubby's credit, he has the following installments: two autos, a mortgage and 1 student loan. We just paid off one auto early to minimize our DTI (the final car payment was closer to close date regardless). The loan closing hasn't posted, but the mortgage company ran their models and it shows that paying this car off will DROP his Experian score by more than 20 points. It would not harm the other two reports.

Why in the world would this action hurt his score? I am on pins and needles because experian is his middle score and this will drop him below 700....which is the score we need.

Someone please help me understand why a responsible financial decision can possibly cost us our dream house??!!!

The problem can't be credit mix...there's still a mortgage, another auto loan, and a student loan reporting open without any negative marks.

I will buy his scores again once the account update, but I'm just sick right now.

pizzadude · ‎09-13-2014

I'd be suprised if it dropped his FICO score that much on the FICO04 score model used my mortgage lenders.

Is this his only open installment loan?

March2010 FICO® ~ 695 TU, 653 EQ, 697 EX

ezdriver · ‎09-13-2014

Score modelling systems are not always right. Since the loan has already been paid, let us know what the ned result is and how close to the prediced outcome was the resulting score.

frugalQ · ‎09-13-2014

He still has 3 open installments on his credit: mortgage (chase bank), auto loan (ford credit), and student loan (consolidated years ago).

I am praying that it's wrong. Even the mortgage lady was baffled. The other strange thing was that only Experian showed a change and not the other two bureaus.

After sleeping on it last night, I've come to the conclusion that we made the right financial decision by paying off one car. We have the ability to add this savings towards our downpayment. I am not gonna stress over credit score. If this derails our home building process, then it wasn't meant to be.

I will post the results.

pizzadude · ‎09-13-2014

I agree that it's more likely to be a fluke in their estimator than something that will significantly drop your FICO score.

March2010 FICO® ~ 695 TU, 653 EQ, 697 EX

Anonymous · ‎09-14-2014

What does his CC situaion look like? I know you're worried about DTI but there's alot more points to be gained by looking into the revolving accounts. They hold alot more weight than installment loans. Losing 20 points on an installment loan is highly unlikely.

frugalQ · ‎09-14-2014

He has one card that's 50% of his 5k limit, another card with 0 balance, and AU on a couple of my cards that have either 0 or $100-ish reporting. All in all, he has about 22k total cc credit and using about 2.5k

Wedecided to just pay down his card down sooner than we originally planned to get points back. What frustrates me is the fact that is we won't save all of the car note a put towards downpayment. Quick side note: his score was over 700 even with the 50% showing on his card.

frugalQ · ‎11-06-2014

Update: the auto loan closed on his account about 2 weeks ago, and I purchased a new experian report from here on Tuesday. His score rose 2 points from the last purchase in September.

I believe the experian FICO score bought here is not the same version as the one used for mortgages, but I'm still happy that his score basically remained unchanged.