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Does paying off installment loan lower Fico Score?

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LB2484
Valued Member

Does paying off installment loan lower Fico Score?

I am looking to start my mortgage pre qualification in the next 30 days.
I have 3 installment loans on my credit file. No lates on any of them.
One is a personal loan and the other two are car loans. If I pay off the 2nd car loan that I owe 3800.00 dollars on will it lower my scores?
The loan is over 4 years old.
I also have 3 credit cards
BOA with 1,000 cc limit, CapOne 1,250 cc limit and JC Penney with 700 cc limit. I have all cards at 0 balance with one reporting less than 9% utilization monthly.
I know that paying off the car note will help with my DTI but don't want to do anything to drop my scores
Scores as of March 13
Fico TU 671
Fico EX 714
Fico EQ 656

Any advice would be greatly appreciated.
Message 1 of 6
5 REPLIES 5
azguy13
Senior Contributor

Re: Does paying off installment loan lower Fico Score?


@LB2484 wrote:
I am looking to start my mortgage pre qualification in the next 30 days.
I have 3 installment loans on my credit file. No lates on any of them.
One is a personal loan and the other two are car loans. If I pay off the 2nd car loan that I owe 3800.00 dollars on will it lower my scores?
The loan is over 4 years old.
I also have 3 credit cards
BOA with 1,000 cc limit, CapOne 1,250 cc limit and JC Penney with 700 cc limit. I have all cards at 0 balance with one reporting less than 9% utilization monthly.
I know that paying off the car note will help with my DTI but don't want to do anything to drop my scores
Scores as of March 13
Fico TU 671
Fico EX 714
Fico EQ 656

Any advice would be greatly appreciated.

If you pay off that care note, I do not believe it will lower your score and this is why. Most, if not all of the stories you hear about paying off an installment loan resulting in a lower score come from people who only have one installment loan. As long as you have another one open and reporting, I do not see why you score would decrease.

 

That is just from my experience though. I have paid off multiple car loans without my score going down. (I like getting a new vehicle every few years)

Message 2 of 6
user5387
Valued Contributor

Re: Does paying off installment loan lower Fico Score?

You can find reports on this forum where paying off an installment loan cost a few points.

 

The effect tends to be pretty small, though.

 

Message 3 of 6
Revelate
Moderator Emeritus

Re: Does paying off installment loan lower Fico Score?


@user5387 wrote:

You can find reports on this forum where paying off an installment loan cost a few points.

 

The effect tends to be pretty small, though.

 


+1

 

Been reports of less than 2 open installment loans drop a couple points; however, if unless you're near a tier boundary, the DTI calculation might be far more important (even if you are near a tier for that matter) in terms of what mortgage amount you can qualify for.  

 

It's worth running the DTI calc with your income vs. your expected housing payment: if you easily clear the ratios I probably wouldn't touch the report; however, if it's borderline or you don't reach the threshold on a DTI calc, may make sense to kick the payment to the car note or other installment loans.  I'm going to have to do that personally when it comes to my own mortgage process as my own car payment is non-trivial in my case as I may need to color out to the maximum loan qualification line.




        
Message 4 of 6
LB2484
Valued Member

Re: Does paying off installment loan lower Fico Score?

Thank you for your advice. I think I will wait it out and not take any chances of lowering my scores. I read that an underwriter may exclude it in DTI if I have less than 10 payments.
Message 5 of 6
Revelate
Moderator Emeritus

Re: Does paying off installment loan lower Fico Score?


@LB2484 wrote:
Thank you for your advice. I think I will wait it out and not take any chances of lowering my scores. I read that an underwriter may exclude it in DTI if I have less than 10 payments.

As I understand it after talking to Chase a few weeks back, that's no longer the case.  I don't know if that's Chase specific but he suggested it was a change in the general guidelines handed down.

 

I intend to talk to a few banks regardless before I pull the trigger by a few months (as we're talking on the order of two hours of my time, and I'd rather not close the installment tradeline any sooner than necessary from a FICO perspective) as I'm under 10 payments anyway; however, if they're consistent in the message that such things are no longer excluded, I'll be paying off the car note immediately.




        
Message 6 of 6
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