Understanding FICO® Scoring

[Timothy]

I love this-

Too bad my auto is at zero %.

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ilovepizza wrote:
Call and ask what happens if you pay off almost all of it except for lets say $1000. Ask if you have to make payments or if you can just wait until the balance drops to where you have to start making payments.

Example.
$10,000 loan with $200 monthly payments. (50 payments)
If you could pay $9000 now when would you have to make your next payment?
My car loan company said I didn't have to make another payment until the amount dropped to $1000 in this case. So each month I sent in $1 to report to that CRAs. They hated me. I stretched out my loan for years! I paid virtually no interest and got credit for long term payment history.

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[diggumsmacks]

That was a good idea Pizza! I'll have to try that

[Conc]

Wouldn't that mean that you're paying all the interest though? For example, if I make a triple payment and they tell me that I'm able to skip the next two months because of it, that doesn't do me much good if it's like I'm paying the coming months in advance.

Or were all the extra payments going towards the principal AND you were given time before your next payment was due?

[VLGaffEsq]

In my opinion, the interest you pay isn't the issue, it's having that nice (and hopefully long) installment loan with a constant payment history that is the biggest benefit to help raise your FICO score.  I made the mistake last month of selling my car and paying off my auto loan, and now my credit reports and scores are hurting, they claim, for lack of any "installment loans."  Go figure...

I would take the longest installment loan possible and don't worry about the payments or interest.  It is the good payment history you should be after, which will help increase your scores, thereby allowing you to get btter interest rates on much bigger loans, like your next mortgage or refinance.

[RobertEG]

Unfortunately, sad but true.  Paying off an installment loan may help in the %util of debt category, but reduces your score in the credit mix category.  Having, or deleting, an installment loan can mean a 20 pt swing in credit rating, depending upon the lenght of the loan.  If increasing FICO is the goal, dont pay it off.  Keep it to shoiw credit mix and payment history. If, however,  saving $ is the goal, pay it off now.  Ironic, but true.

[RobertEG]

You must know what game you are playing in.  If the game is to quickly reduce debt and interest payments, then dont track FICO. Having installment debt helps FICO, but costs you interest.  If the game is to increase FICO, keep the installment loan, and pay the interest price.  But FICO score chasing is usually the focus of those seeking new credit, and not improving current status.  Chase FICO, get the score up, and then use that to secure new credit... the result is gaming FICO, and increasing debt.  Take your poison.

[fused]

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RobertEG wrote:

You must know what game you are playing in.  If the game is to quickly reduce debt and interest payments, then dont track FICO. Having installment debt helps FICO, but costs you interest.  If the game is to increase FICO, keep the installment loan, and pay the interest price.  But FICO score chasing is usually the focus of those seeking new credit, and not improving current status.  Chase FICO, get the score up, and then use that to secure new credit... the result is gaming FICO, and increasing debt.  Take your poison.

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Util% of debt on installments has a minimal affect on scores. Rather someone has high or low installment balances is moot, it's all about paying on time. I do agree with your post though.

[RobertEG]

Thanks, fused.  That is my experience, particulary if the installment loan is ageing... since interest is much reduced, and the benefit of haviing that installment loan in the credit mix is a FICO plus.  I have an installment loan that I could pay off tomorrow, but only make  normal payments to keep it in the active  mix.  But, again, only because I will be seeking new credit within the next few months, and need the FICO boost.  Its a twisted web we weave!