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Member
cladjuster
Posts: 8
Registered: ‎10-23-2008

Need help understanding a closed auto loan while opening a new auto loan.

I recently paid off my old auto loan through chase bank, and got approved for a new lease. My question is will my score go down since i paid off my previous loan even though i have a new loan through the lease. And if my score does go down, will it eventually have a huge increase since i have shown that i can handle huge loans?


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Established Contributor
guydiver
Posts: 534
Registered: ‎08-30-2007

Re: Need help understanding a closed auto loan while opening a new auto loan.

[ Edited ]

cladjuster wrote:

I recently paid off my old auto loan through chase bank, and got approved for a new lease. My question is will my score go down since i paid off my previous loan even though i have a new loan through the lease. And if my score does go down, will it eventually have a huge increase since i have shown that i can handle huge loans?


Auto loans are installment loans.  If all other things remain the same, you may or may not see any change in your Fico scores depending upon your current file.  I would

guess that the effect would be minimal, and the most change will likely be a small drop on the CRA that was pulled due to the hard inquiry, and that also will be short lived.  Best case is your auto enhanced scores will improve if you maintain the account in good standing.  I paid and closed an auto loan and there was no change in my score.  I then opened another installment loan, and lost five points due to the hard inquiry.  That came back the next month, but YMMV.  Installment loans just do not make big waves in your Fico as compared to revolving balances(credit cards).  Keep in mind all of this depends on what is in your current file, your credit mix, AAoA etc...., but for the most part it will apply.  And......welcome to the forums.  :smileyhappy:

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Member
cladjuster
Posts: 8
Registered: ‎10-23-2008

Re: Need help understanding a closed auto loan while opening a new auto loan.

Ok, that is a releif but kinda a bummer. Im in rebuilding mode and kinda wish it showed more positivly but at least i know that my weak score isnt going to get any worse. Thanks for the info.


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Current Score: 667 EQ
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bettercreditguy1
Posts: 738
Registered: ‎02-11-2012

Re: Need help understanding a closed auto loan while opening a new auto loan.

Scores improve over time. Paying loans and cc's off on time will assist in keeping your score more stable and then a gradual ascent as the baddies, collections, and late payments begin to age and fall off. AS always ymmv dependant on your complete credit profile.

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RobertEG
Posts: 17,456
Registered: ‎03-19-2007

Re: Need help understanding a closed auto loan while opening a new auto loan.

[ Edited ]

The paid loan will, as stated, probably have little impact, as install loan % remain against orig balance is not weighted anywhere near the % util on a revolving account.

The paid loan will continue, even though the account is closed, to score in your avg age of accts, and possibly be your oldest acct, so it wont affect your lenght of credit history calculation.  You will only lose its value in your AAoA calc when it reaches approx ten years from date closed, when the CRA will then probably exercise its arbitrary deletion of that account from your file.  A long way off.

 

However, it is most likely the new acct that will affect scoring, not closing of the old.

They will most likely do a hard-pull when evaluating the grant of that credit, and if approved and reported, will show as a new trade line with zero age.

It will thus enter into your AAoA calculation with negative effect.  How much will depend upon your AAoA before and after the new trade line.  You can do the math.

The effect of the hard-pull is fleeting, as it disappears from scoring after one year, but the AAoA effect lives on. 

 

Length of credit is 15% of total scoring, so I would opine that is where the impact will most likely show.

 

A separate but still important effect, aside from any scoring impact, is the fact that continuing to maintain any active trade line in good standing can be a positive reflection when any future creditor does a manual review of your credit report.  That may be important if and when, for example, you shop for a new auto loan in the future.

It is not limited only to FICO scoring impacts.


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