Reply
Member
AlexDmv
Posts: 8
Registered: ‎02-20-2012
0

Paying Off Car Loan Lower FICO Score?

My FICO score is borderline excellent, just above 760 and I'll be buying my first home in September/October 2012. Will paying off my car loan lower my FICO score?I'm worried because a slight decrease will lower my FICO from the 'Excellent' to 'Good' range.

 

My problem is that I probably need to pay off my car loan before I get a home mortgage loan because my car loan will make my Back-End Debt-To-Income ratio too high.

 

I've heard that paying off a car loan will lower a FICO score because it decreases the variety of credit instruments. If I have to pay the car loan off, when should I do it? Right after I get pre-qualified for a mortgage loan or right after?

771 TransUnion FICO TU98 Score May 27, 2012
763 Equifax FICO May 2012
Super Contributor
marty56
Posts: 5,672
Registered: ‎10-06-2007
0

Re: Paying Off Car Loan Lower FICO Score?

[ Edited ]

If DTI is an issue here, then DTI trumps FICO in your case.  You may loose some point but I don't think enough to make a difference the loan APR.  Ven if it did and you wanted to stay in the home forever, you could always refi or refi to a short loan later if you could afford to do so.  When I refied my first mortage, I took a FICO score hit to be at 0% util.

09/12/2013 FICO: EQ: 772 EX:813 TU:752
Moderator
pizzadude
Posts: 9,674
Registered: ‎01-28-2010
0

Re: Paying Off Car Loan Lower FICO Score?


AlexDmv wrote:

My FICO score is borderline excellent, just above 760 and I'll be buying my first home in September/October 2012. Will paying off my car loan lower my FICO score?I'm worried because a slight decrease will lower my FICO from the 'Excellent' to 'Good' range.

 

My problem is that I probably need to pay off my car loan before I get a home mortgage loan because my car loan will make my Back-End Debt-To-Income ratio too high.

 

I've heard that paying off a car loan will lower a FICO score because it decreases the variety of credit instruments. If I have to pay the car loan off, when should I do it? Right after I get pre-qualified for a mortgage loan or right after?



I agree with Marty that DTI may be the more important issue ~ however installment debt utilization is a very minor part of FICO compared to revolving utilization so it shouldn't make much difference ( if any ) in your score.   Also, even as a closed loan it will still contribute positively towards your mix of credit.

March2010 FICO® ~ 695 TU, 653 EQ, 697 EX
Frequent Contributor
cassembler
Posts: 470
Registered: ‎02-07-2011
0

Re: Paying Off Car Loan Lower FICO Score?

AlexDMV, if you want to wait a few days, I'll have a report of my own... The paid off account already reported to EX, just waiting for EQ so I can see the before and after. Or, MyFICO can just start showing EX scores :smileyhappy:

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."
Super Contributor
marty56
Posts: 5,672
Registered: ‎10-06-2007
0

Re: Paying Off Car Loan Lower FICO Score?


cassembler wrote:

MyFICO can just start showing EX scores :smileyhappy:


Dec 21, 2012. Marty gets an 849 EX FICO score from MyFICO.  Lost 1 point for being left behind.

 


 

09/12/2013 FICO: EQ: 772 EX:813 TU:752
Member
AlexDmv
Posts: 8
Registered: ‎02-20-2012
0

Re: Paying Off Car Loan Lower FICO Score?

Thanks very much, that would be great to see the effect and I greatly appreciate the help. :smileyhappy:

771 TransUnion FICO TU98 Score May 27, 2012
763 Equifax FICO May 2012
Frequent Contributor
cassembler
Posts: 470
Registered: ‎02-07-2011
0

Re: Paying Off Car Loan Lower FICO Score?

Well, hang on Alex. The account updated on EX a week ago; it's still showing on EQ and TU... Any day now I hope, lest the AAoA bump might affect the results (from 5.3 to maybe 5.4 years; I don't expect that to have any real impact, but will technically be an additional change...)

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."
Frequent Contributor
cassembler
Posts: 470
Registered: ‎02-07-2011
0

Re: Paying Off Car Loan Lower FICO Score?

[ Edited ]

Well, much to my $20-lighter wallet's chagrin, my FICO score went from 698 to

 

...

...

...

 

 

 

 

...

 

...

 

 

 

...

 

 

...

 

698. No change to score at all. I confirmed the $3600 balance went from $3600 to zero, and the account shows as closed. No change in score. I have one other open auto note at $14k, but it was still a ~20% drop in installment util. Oh well, at least we know :smileyhappy:

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."
Established Contributor
teenastie
Posts: 638
Registered: ‎07-28-2011
0

Re: Paying Off Car Loan Lower FICO Score?

Alex,

 

If you have another type of installment loan (ie: student loan, Amex charge card, LOC) you scores may not be affected by paying off your auto loan. You only need 1 type of installment to meet the "credit mix" criteria. 



Frequent Contributor
cassembler
Posts: 470
Registered: ‎02-07-2011
0

Re: Paying Off Car Loan Lower FICO Score?

I believe closed installments still count towards your credit mix... Could be wrong.

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."

myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.

>> About myFICO
FICO Score - The Score that matters
Click to Verify - This site chose VeriSign SSL for secure e-commerce and confidential communications.
Fair Isaac Corporation is a BBB Accredited Financial Service in San Rafael, CA
FOLLOW US Social Media Facebook Twitter Pinterest Google+
}