Need Advice!!

[Anonymous]

Ok.  I will keep that in mind.  I was told previously that having an open installment account, along with revolving debt, at the time of applying for a mortgage "looked better." Especially since automobile installment accounts usually  have a higher limit than most credit card limits (not always though).

[Booner72]

Well it might "look better" but it might not.  Having no car payment helps DTI.  Having paid off car payment w/ no lates looks good no matter how you look at it.  Your scores qualify you so I think you should do what makes sense financially.

[HaHaHell]

I got an estimate on my car and I would come out $800 to the good on my trade. I then wanted to finance another car that's about the same as I owe on my current loan and hopefully get a much better rate with a lot cheaper note. As it stands now, the loan won't be paid off until 2016 which means the interest I will pay alone would buy a car. The only hold up is not knowing if my score will drop because of paid off account and opening a new account.

[GregB]

The difference between an open installment account and none is most likely to be 0-3 points. As pointed out having one on your reports does help but only a small amount more if open. A closed one stays on your reports for 10+ yeats. A new loan is much more likely to cause a problem on debt to income calculations on a mortgage since it will be included if you have more than one year worth of payments left. Also a newer car loan will hurt on a mortgage app.

Add in the waste of money due to profit on a replacement car, registration, insurance changes, fees, etc. and it probably adds up to actually being worse than paying the high interest. That is assuming your credit is much better and you would get a much better rate. If your credit is better you can refinance at a similar rate.

We don't know all the information but it is likely you will take the hole you are in and make it deeper. If you really want a house, I would sell the car you have to get rid of the loan and drive something that you can pay for with cash.

[HaHaHell]

That makes sense. I won't look at getting another car. The house is a major priority to me. I have to be ready in 2 years. I will take some of the extra cash that I have and apply it to my payment every month. Is there a way to ensure that it is applied only towards the principal?

[MarineVietVet]

---

@Anonymous wrote:

Ok.  I will keep that in mind.  I was told previously that having an open installment account, along with revolving debt, at the time of applying for a mortgage "looked better." Especially since automobile installment accounts usually  have a higher limit than most credit card limits (not always though).

---

This may very well be true with a manual review. My comment was only addressing what scoring looks at and I should have amplified what I meant. My apologies.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

@ MarineVietVet - no appologies necessary. I appreciate all the information that I get from senior posters on this site. Thanks for pointing that out, because I was told that when I thought I was going to have to use manual underwriting. Have a great day!