Priortize car loan or credit card?

[Anonymous]

In attempting to bump my score a few more points, which action would give me the most bang for my buck:

1. Pay off a car loan with only an $1100 balance and $278 monthly payment. - or -

2. Pay the $1100 on a charge card that has a $3900 credit limit and a current balance of $1,200.

I know the charge card balance is below 1/3 of the limit so would the complete elimination of the car loan do me more good at this point?

Thanks,

JoeRu

[mauve]

Pay the card pay the card pay the card.

Utilization is based on your *revolving* credit, which the card is and not on your *installment*, which the car loan is.  Utilization is 35% of your credit score and you want it to be between 0-9% for maximum benefit.

[Anonymous]

+1 what Mauve said.

[Anonymous]

Much Thanks,

I appreciate your quick feedback.

After the card goes to zero, will the installment loan being paid off also contribute to a score bump?

JoeRu

[mauve]

I don't think so, actually - but it will probably still feel good!

[MarineVietVet]

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@mauve wrote:

Pay the card pay the card pay the card.

Utilization is based on your *revolving* credit, which the card is and not on your *installment*, which the car loan is.  Utilization is 35% of your credit score and you want it to be between 0-9% for maximum benefit.

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I know I'm picking nits here but for the sake of accuracy utilization is actually 30% of the total score. Payment history is 35%.

From a BK years ago to:

9/09 EX pulled by lender 802
3/10 EQ- 800
4/10 TU -772

You can do the same thing with hard work

Credit Scoring 101
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[mauve]

Good call.

http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

I remembered wrong.  But both are pretty important, and I stand by "pay cc down/off before auto loan to boost score"

[Lel]

mauve has it generally right.  Installment utilization doesn't have as significant an impact on one's credit score as revolving credit.

For example, I just got a new car loan last summer.  When the new loan hit my credit report with its full original balance, my score dropped by 14 points.  But there were other factors that impacted my score - the new inquiry and a slightly lower average account age.  So the effect of "full utilization" of the installment account probably only did a few points worth of damage.  My score has since recovered, BTW, even though I've made only 9 months of payments on a 60 month loan.

Also, though I'm not certain whether this is really the case, if you pay off your auto loan you'll no longer have an open auto loan account any more.  Some people have said that this will lead to a loss of your mix of credit, but I was under the impression that since your auto loan remains on your credit report for 10 years after it's paid, it will still be factored into your mix of credit picture.

ETA: well, speak of the devil....someone just posted the phenomenon of a lower FICO score after his auto loan was paid off.  Of course, changes in one's credit profile don't always occur in isolation, so there may not be an actual cause-and-effect relationship between the loan payoff and the score drop.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Paying-off-Car-loan-lowers-FICO-score/td-...

[Anonymous]

I'm curious about this, too.

DH paid off the 2nd mortgage, his only installment, and did not get a score hit.

But, I wonder if we're scored on whether or not we have an installment in the past six months (or whatever), so the score impact - if any - may be delayed somewhat. 

In the end, I've been glad to read posts from those in the 800's that have no installments reporting.  Eases my mind somewhat.

[MarineVietVet]

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@Lel wrote:

mauve has it generally right.  Installment utilization doesn't have as significant an impact on one's credit score as revolving credit.

For example, I just got a new car loan last summer.  When the new loan hit my credit report with its full original balance, my score dropped by 14 points.  But there were other factors that impacted my score - the new inquiry and a slightly lower average account age.  So the effect of "full utilization" of the installment account probably only did a few points worth of damage.  My score has since recovered, BTW, even though I've made only 9 months of payments on a 60 month loan.

Also, though I'm not certain whether this is really the case, if you pay off your auto loan you'll no longer have an open auto loan account any more.  Some people have said that this will lead to a loss of your mix of credit, but I was under the impression that since your auto loan remains on your credit report for 10 years after it's paid, it will still be factored into your mix of credit picture.

ETA: well, speak of the devil....someone just posted the phenomenon of a lower FICO score after his auto loan was paid off.  Of course, changes in one's credit profile don't always occur in isolation, so there may not be an actual cause-and-effect relationship between the loan payoff and the score drop.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Paying-off-Car-loan-lowers-FICO-score/td-...

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That's interesting. I don't believe I've read that before.

In any case I'm looking forward to the day I have no installment loans. That means I'm out of debt. Being debt free is my ultimate goal and not how high I can get my score. I'll keep a few CC's so I'll have something reporting but I'm not worried about losing a few points because of no fixed loans.

From a BK years ago to:

9/09 EX pulled by lender 802
3/10 EQ- 800
4/10 TU -772

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Credit Problems Which Is Worse?
Whats In Your FICO Score