How does FICO/ Mortgage Underwriter look a joint autoloans

[Anonymous]

We are nearing a purchase of a home.  We are already gone through accounts with the mortgage broker, are pre-qualified, and have some extra cash to pay down debts (goal to improve my fico score)  (Broker's suggestion)

He suggested that we pay off the auto loans

We currently have 3 auto loans.

My husband- 2 (I am the co-signer) and it is listed as "joint" on my Fico report

I have 1 in my own name (lease)

To the casual observer it looks like we have 5 installation loans across both our credit reports.

Searching here I've read lots of stories about people's scores dropping after paying off an installment loan early.  Should we be cautious here and not take the brokers advice?

Hows does Fico/MO look at these installment loans?  For example we have $4600 left on one loan.  When they calculate our ratios is that $4600x 2 since its on both our credit reports?

Improving our scores a bit will get a few extra basis points on the mortgage so we are open to the idea, but we are closer the threshold of losing a very favorable interest rate if the score drops 

[Anonymous]

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@Anonymous wrote:

We are nearing a purchase of a home.  We are already gone through accounts with the mortgage broker, are pre-qualified, and have some extra cash to pay down debts (goal to improve my fico score)  (Broker's suggestion)

He suggested that we pay off the auto loans

We currently have 3 auto loans.

My husband- 2 (I am the co-signer) and it is listed as "joint" on my Fico report

I have 1 in my own name (lease)

To the casual observer it looks like we have 5 installation loans across both our credit reports.

Searching here I've read lots of stories about people's scores dropping after paying off an installment loan early.  Should we be cautious here and not take the brokers advice?

Hows does Fico/MO look at these installment loans?  For example we have $4600 left on one loan.  When they calculate our ratios is that $4600x 2 since its on both our credit reports?

Improving our scores a bit will get a few extra basis points on the mortgage so we are open to the idea, but we are closer the threshold of losing a very favorable interest rate if the score drops 

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Couple of things:

1) I think the consensus is that paying off an installment loan doesn't have much of an impact on your score (There's a recent thread floating around on this, but I paid off one of two loans (which had a balance of $3k, the other $15k), and it had zero impact. No change whatsoever). That said, it will eventually reduce the amount of time the tradeline shows on your report (i.e. ~ten years from now or ten years from the end of the year). No biggie imho.

2) He's probably suggesting you pay them off to simply reduce your back-end, which makes sense. If you can, I'd go for it. If you can only pick one of the three, go for the highest payment. A refi might be a good idea if your lender is keen on that, but YMMV there.

3) As for joint vs. single, that's probably going to depend on if you're a community property state and how you're applying for the loan. Also, they should only look at the car notes as what they are - three open notes. To consider it as five would inaccurately double your debt, and that's just silly.

[pizzadude]

+1 to cassembler's comments above.

If you are trying to boost your FICO score it is much better to focus on your revolving utilization.   What are your CC limits and balances as shown on your credit reports ?

[RobertEG]

I would speculate, human nature being what it is, that after moving into a new home, you will be in a rush to make it your own.

With cash depleted by paying the installment loans, will you then use more revolving credit to do those things?

If so, the impact of addtional revolving bal, and probable interest higher than on the installment loan, may be a net loss in both FICO scoring and interest paid.

[Anonymous]

Thank you so much for the replies!

The Mr's credit utilization is 0%

I have some CC debt.  and you all seemed to have confirmed its best to just pay these off and be done with it.

I appreciate your concern for post home purchase expenditures.... we've been there before and know it adds up quickly!   We are very forunate that have been able to continue to save, build a nice safety cushion as well as prepare for the large downpayment, closing etc. 

Despite our efforts, there was much we needed to learn about credit! Running up the airline card every month and taking advantage of 0% interest offers on cars etc probably is going to cost us in basis points more  than we ever got in trips/savings return.

This is actually our fourth home.... and it really goes to show that there is always so much more to learn.

Thank you again.