MyFICO Sim: pay off all my loans for +35pts?

[Anonymous]

Hi everyone, quick rundown of my file...

-3 credit cards, <9% on highest limit, 0 on other two.

-Had 2 student loans, recently paid one off fully and lost 28 points... didn't realize the one I left was a consumer finance loan and perhaps hurt me being the only loan I have left.  I did this because the remaining loan is onl $39/month and I want a low DTI for home purchase.

-3 missed payments... 1 60day from 6 years ago, 2 30days from 1 year and 3 years ago.

-1 inquiry a few months ago.

Anyway, FICO 8 scores after paying off that loan are  EQ715 TU733 EX717.  FICO 5,4,2's  are EQ718 TU744 EX748.

For the longest time, the MyFICO simulator said my best action was simply waiting for 6-8 months to allow my accounts to grow.  Now that I've paid that loan off, it says my best action would be to pay off the full $4000 leftover of my remaining student loan...  What does your intuitions say?  This is scary to me since everyone says that having no loans is a mistake for credit...  but if it's true, I would def do this because my scores would jump and get me a better APR plus improve my DTI....

what to do?!?!?

UPDATE July 9th, 2015:   OK, well I figured I have nothing really to lose, so I decided to take a two-pronged stab at this.  At the time of writing the original post, I had a balance of ~$4000 on the 'bad' loan in question.  I paid $2000 off, which MyFICO said would get me a bonus.  When I did that, I received +8 on Experian, +2 on TransUnion, and +9 on Equifax! 

I was fairly pleased with that, but re-ran the simluator and it continued to say that if I paid more off, I would get more gains.  So, I decided that I would NOT fully pay off the loan (even though it's telling me to) but instead would pay it down to about $500.  At $40 monthly, that gives me some time to keep it on the books until I get my house.  So, I did that, and I just saw today that my Experian has jumped +27 points!!!!!

If the other two scores jump accordingly, I will have officially gotten myself back above 740 range!  I will be ecstatic if this is true....

[Anonymous]

anybody?  is this just a computational anomaly or is there a good reason why having zero loans on file would boost me that much?  it's quite the temptation to see this, but would be insanely cruel if my points dropped instead (which is conventional wisdom)...

[NRB525]

If you only just paid off the student loan, I'd suggest waiting for the file to stabilize after that change. Shocks to the score can cause moves both up and down, but those shocks, once absorbed into the calculation after waiting, can move back toward a mean, either down or up again, offsetting the first jump somewhat.

The remaining student loan should not impact your mortgage shopping, your utilization on the cards won't affect your mortgage shopping, and leaving the student loan in place probably helps to continue growing your score. Paying off the second student loan would lead to no open term loans, which seems like it's best to have one active in the works.

The old 60-day item is probably reduced impact but still some impact on your score. When that drops, you may see some more improvement. Avoid any more 30-day lates like the plague, of course.

FICO score management is a long term process, and as long as you know you are moving in the right direction, that's the most important thing.

[Anonymous]

that's good advice to wait a little bit.  my scores were dinged i guess about a month ago once i paid the first one off. 

i agree that the amount of money on the student loan (or the monthly payment amount) won't hurt my mortgage shopping, but a 36 point bump on my FICOs absolutely would!  that's the only reason i'm asking this ridiculous question, is because the score simulator is making me wonder if i've somehow gotten pushed into some new bucket or something.  before i was dinged for paying off the student loan my scores were around 740 across the board which made me very happy to be looking at mortgages.  now with them back under that threshold i'm pretty bummed about it.  APR's are not trivial...

[Gunnar419]

1. Never trust any credit score simulator. Sometimes they're right, but you can't count on it.

2. Your suspicion about the negative impact of paying off that remaining loan is based on reality. Yes, it's good to get rid of a consumer finance loan, but yes it's also risky to scores to pay off the only loan you've got. Nobody, including the simulator, can guess which way that'll go for you.

Since nobody can really say, the just wait suggestion above is the best course.

[Anonymous]

Oh, one last thing, might be valid or might not be...

The loan that is still remaining is the one with the 2 30 day lates.  Would the lates hurt my score less from a closed account perhaps leading to a score increase? 

[MarineVietVet]

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@Anonymous wrote:

Oh, one last thing, might be valid or might not be...

The loan that is still remaining is the one with the 2 30 day lates.  Would the lates hurt my score less from a closed account perhaps leading to a score increase? 

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I'm afraid not. Scoring looks at only the lates and not whether an account is open or closed.

[Anonymous]

i kinda figured that would be too good to be true.  

"past performance is not indicative of future trends."   used ALL the time in finance.  unless it's pertaining to your credit.  gotta love probabilities.  

anyway, thanks for the input!  i digress...

[Anonymous]

one last comment... the simulator does also show a smaller point increase for paying off half of the remainder of the loan.  this would be much less risky i suppose.

[NRB525]

Have you paid for another set of credit reports, to update the simulator, or are you still using the original scores / credit report from when you looked at this prior to paying off the student loan? The simulator uses the last credit report you paid for, so unless you have a new one, and that credit report shows the paid off student loan, the simulator is not working with the latest data.