Understanding FICO® Scoring

[AlexDmv]

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?

[marty56]

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.

[pizzadude]

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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?

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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.

[cassembler]

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

[marty56]

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cassembler wrote:

MyFICO can just start showing EX scores

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

[AlexDmv]

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

[cassembler]

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...)

[cassembler]

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

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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

[teenastie]

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. 

[cassembler]

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