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Good idea/bad idea--- need opinions

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Anonymous
Not applicable

Good idea/bad idea--- need opinions

This may be a little long but I feel it's important to include some history to receive the most informed answers to my question. Please bear with me.

I have recently undertaken the task of building my credit score. When I started this past June, it was 590...ouch. I have one car loan that is 16 months old and a personal loan (was cosigned for) that will be payed off next November (2015). Neither of those loans have ever had a late or missed payment. Back in June I received a Capital One pre-approved credit card offer. I accepted the offer and completed the credit steps program having never come close to maxing the card and making way over the minimum payment. This month I received an email from Capital One announcing that my CL on that card had been increased $2000 for a CL of $2300. Last week I applied for a Walmart card and was approved for $700. Checking my score revealed that it had risen 47 points to 637. I understand 637 is nothing to brag about, but for me the 47 point increase in just 5 months was an eye opener! I have since learned that the things that were keeping my score low were 1) the lack of credit  2) average account age 3) three derogotory remarks (medical bills that had gone to collections).

Getting the Capital One and Walmart cards 5 months apart is a start to correcting #1. Only time can improve #2. And all of the derogotory remarks will be 7 years old next summer and should fall away.

So, that is roughly where I am right now. My question is this:

 

My car loan balance is 10500 @ 16.14% with a payment of $265/month with 54 payments remaining. There have been zero late or missed payments.

My personal loan balance is 2550 (I don't remember the %)  @ $247 for another 11 months. There have been zero late or missed payments. 

I own my property outright and so I have no mortgage or rent payment.

 

I have an offer to refinance the car at 7.49% for 84 months at $161/mo.

 

I am financially able to make an additional $100/mo payment toward the personal loan. If I refinance the car, I could add that $100 savings to the personal loan payment to make it an additional $200/mo ($450 total) which should pay that loan off around July. I could then divert that $450/mo towards the car payment making that $611/mo which would pay the car off somewhere around the end of 2016.

 

So, is this a good idea, or a bad idea? Will my credit score take a hit if I jump the payments like that?

 

 

Message 1 of 13
12 REPLIES 12
Copperlady41
Member

Re: Good idea/bad idea--- need opinions

Paying off installment loans can lowere your credit score. Remember that credit scores are comprised and weighted heavily  on the following; on-time payment history, mix of credit, and credit card utilization (keep it as low as possible). You could try and get the baddies removed by doing PFD and/or GW letters and with good credit card and installment payments you would see a rise in your credit scores.  Hope this helps. 


Starting Score: EQ693, EX640, TU 702
Current Score: EQ712, EX721,TU721
Goal Score: 760 Across All 3


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Message 2 of 13
Anonymous
Not applicable

Re: Good idea/bad idea--- need opinions


@Anonymous wrote:

This may be a little long but I feel it's important to include some history to receive the most informed answers to my question. Please bear with me.

I have recently undertaken the task of building my credit score. When I started this past June, it was 590...ouch. I have one car loan that is 16 months old and a personal loan (was cosigned for) that will be payed off next November (2015). Neither of those loans have ever had a late or missed payment. Back in June I received a Capital One pre-approved credit card offer. I accepted the offer and completed the credit steps program having never come close to maxing the card and making way over the minimum payment. This month I received an email from Capital One announcing that my CL on that card had been increased $2000 for a CL of $2300. Last week I applied for a Walmart card and was approved for $700. Checking my score revealed that it had risen 47 points to 637. I understand 637 is nothing to brag about, but for me the 47 point increase in just 5 months was an eye opener! I have since learned that the things that were keeping my score low were 1) the lack of credit  2) average account age 3) three derogotory remarks (medical bills that had gone to collections).

Getting the Capital One and Walmart cards 5 months apart is a start to correcting #1. Only time can improve #2. And all of the derogotory remarks will be 7 years old next summer and should fall away.

So, that is roughly where I am right now. My question is this:

 

@Anonymous car loan balance is 10500 @ 16.14% with a payment of $265/month with 54 payments remaining. There have been zero late or missed payments.

@Anonymous personal loan balance is 2550 (I don't remember the %)  @ $247 for another 11 months. There have been zero late or missed payments. 

I own my property outright and so I have no mortgage or rent payment.

 

I have an offer to refinance the car at 7.49% for 84 months at $161/mo.

 

I am financially able to make an additional $100/mo payment toward the personal loan. If I refinance the car, I could add that $100 savings to the personal loan payment to make it an additional $200/mo ($450 total) which should pay that loan off around July. I could then divert that $450/mo towards the car payment making that $611/mo which would pay the car off somewhere around the end of 2016.

 

So, is this a good idea, or a bad idea? Will my credit score take a hit if I jump the payments like that?

 

 


I would definitely jump on the refi offer, no doubt about that. However, I did see you other message about wanting to get a construction loan in mid 2016 - so, taking THAT into account, I would suggest going ahead with step two and pay the PL  down and free up that $450 a month - however, I would not apply all of that to the car loan. I would suggest putting $100 extra per month on the car, paying it off sometime in mid to late 2017. Take the other $350 and bank it for an additional 6K of cash for your construction loan. Assuming you already have a down saved up or are working on it, that additional 6K could be used to buy down your interest rate.

Message 3 of 13
Anonymous
Not applicable

Re: Good idea/bad idea--- need opinions

Good advice Norman. Thanks! My property appraises at about 20K, and is fully improved. From what I understand, that can be used as a down payment, along with what we have saved. The additional $6K+ would certainly come in handy for closing costs and buying down the rate. I wonder now if I wait just a few more months too see if I can get my score into the 640's or higher, could I get an even better rate on the car, thus freeing more cash for the down payment. This is looking better and better.

Message 4 of 13
Anonymous
Not applicable

Re: Good idea/bad idea--- need opinions

Once you get down around 7-8%, reducing the interest rate further doesn't affect the payments nearly as much - you might squeeze out another 10 bucks, at best. You might examine your UTI, and see if you can get a few points there, but I wouldn't wait more than 1 month for score improvements.

Message 5 of 13
Anonymous
Not applicable

Re: Good idea/bad idea--- need opinions

I'm new to all of this and am not up to speed on all the lingo. What is UTI?

Message 6 of 13
Anonymous
Not applicable

Re: Good idea/bad idea--- need opinions

UTI is you credit utilization percentage - the amounts carry over on your credit cards relative to you total limit. Because it hase no 'memory' of previous months, it can be one method of getting a very quick score bump if your UTI is not ideal. Generally it should be on one card or less than half of your cards if you have many, and it should be <10% of the total available across all cards, and each card that carries a balance should be <10% of its own limit.

Understand this is only the amount carried over - you can charge as much as you want on a card as long as you pay it back down before the statement date. Issuers actually like to see lots of activity on a card with very little carryover balance. That means profit for them from the vendor fees, but little risk.  

Message 7 of 13
MarineVietVet
Moderator Emeritus

Re: Good idea/bad idea--- need opinions


@Copperlady41 wrote:

Paying off installment loans can lowere your credit score. Remember that credit scores are comprised and weighted heavily  on the following; on-time payment history, mix of credit, and credit card utilization (keep it as low as possible). You could try and get the baddies removed by doing PFD and/or GW letters and with good credit card and installment payments you would see a rise in your credit scores.  Hope this helps. 


In order of importance it's payment history (35%), revolving utilization (30%), length of credit history (15%), new credit (10%),and credit mix (10%).

 

 

Message 8 of 13
Anonymous
Not applicable

Re: Good idea/bad idea--- need opinions

Thanks Norman. No points to gain there. Walmart card CL $700-Bal = $0, Capital One CL $2300-Bal $53. I used the Cap1 card then came home and saw the online bill was available and paid the entire balance. Had I waited a few days the new charge would have been there and I would have paid it too. I don't think it would matter much though. Total CL of $3000 and a balance of $56 seems like a pretty good UTI to me. That's about 2%.

 

Message 9 of 13
Anonymous
Not applicable

Re: Good idea/bad idea--- need opinions

First and foremost Marine, thank you for your service. I'm a combat vet myself. And thank you for the breakdown. My payment history = 100% on time revolving uti = 2% Length of credit history is confusing. I have been paying on the personal loan for over 4 years but report shows only 7 mos credit history. New credit - I have no idea how to gauge that one. Credit mix...Auto loan, personal installment loan and the credit cards, all current and never late. So it looks like I'm on the right track.

Message 10 of 13
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