Paying off an installment account help or hurt score?

[Anonymous]

Hello,

I am in the process of buying a house (our offer was accepted jus tyesterday). In preparation for the mortgage, I had taken a few steps to try and improve our score. As of yesterday, I was 682/684/694 and had a preapproval for our loan amount. I am trying to get our score over 700 to try and get a better loan rate, or at least to get firmer into the 680-700 range, since just talking to a 2nd mortgage broker caused a new inquiry and a 2 pt drop on Equifax.

So I have done 3 things to try and improve the score:

1) Our credit cards were <30% before, I paid them down to <10%.

2) I paid some extra principal down on one of our cars (from 92% of balance to 33%, this was a 5 year loan we were only 8 months in to)

3) I paid off one of our car loans (this was a 5 year loan we were only 2 years in to)

It is paying off the car loan that has me concerned though. In part I did it because I wanted to lower our debt-to-loan ratio, at least for our own personal budgeting, but when talking to my parents about it, they had mentioned "yeah, that will close that account". Then it hit me that normally, closing an account is bad, and it made me begin to wonder if paying off the car might actually hurt my credit rather than help it.

I am so close with some of these scores, where just this morning paying down the one loan hit Experian and boosted my score 8pts from 694 to 702. From how they calculate your score between the agencies, I need another one to get above 700 and then I'm good, but I'm worried in the meantime it might do the opposite.

Anyone else have any experience with this?

[-NewGuy-]

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@Anonymous wrote:

Hello,

I am in the process of buying a house (our offer was accepted jus tyesterday). In preparation for the mortgage, I had taken a few steps to try and improve our score. As of yesterday, I was 682/684/694 and had a preapproval for our loan amount. I am trying to get our score over 700 to try and get a better loan rate, or at least to get firmer into the 680-700 range, since just talking to a 2nd mortgage broker caused a new inquiry and a 2 pt drop on Equifax.

So I have done 3 things to try and improve the score:

1) Our credit cards were <30% before, I paid them down to <10%.

2) I paid some extra principal down on one of our cars (from 92% of balance to 33%, this was a 5 year loan we were only 8 months in to)

3) I paid off one of our car loans (this was a 5 year loan we were only 2 years in to)

It is paying off the car loan that has me concerned though. In part I did it because I wanted to lower our debt-to-loan ratio, at least for our own personal budgeting, but when talking to my parents about it, they had mentioned "yeah, that will close that account". Then it hit me that normally, closing an account is bad, and it made me begin to wonder if paying off the car might actually hurt my credit rather than help it.

I am so close with some of these scores, where just this morning paying down the one loan hit Experian and boosted my score 8pts from 694 to 702. From how they calculate your score between the agencies, I need another one to get above 700 and then I'm good, but I'm worried in the meantime it might do the opposite.

Anyone else have any experience with this?

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Welcome to the forums. I think that you did good with the first two steps. Payng down UTIL is always beneficial.

FICO does score higher for a mix of credit (revolving and installment). However, despite paying off one car loan entirely you still have another one open, so I don't think that your score should go down from that. Even if it does, I would expect the drop to be pretty darn small.

[MarineVietVet]

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@Anonymous wrote:

Hello,

I am in the process of buying a house (our offer was accepted jus tyesterday). In preparation for the mortgage, I had taken a few steps to try and improve our score. As of yesterday, I was 682/684/694 and had a preapproval for our loan amount. I am trying to get our score over 700 to try and get a better loan rate, or at least to get firmer into the 680-700 range, since just talking to a 2nd mortgage broker caused a new inquiry and a 2 pt drop on Equifax.

So I have done 3 things to try and improve the score:

1) Our credit cards were <30% before, I paid them down to <10%.

2) I paid some extra principal down on one of our cars (from 92% of balance to 33%, this was a 5 year loan we were only 8 months in to)

3) I paid off one of our car loans (this was a 5 year loan we were only 2 years in to)

It is paying off the car loan that has me concerned though. In part I did it because I wanted to lower our debt-to-loan ratio, at least for our own personal budgeting, but when talking to my parents about it, they had mentioned "yeah, that will close that account". Then it hit me that normally, closing an account is bad, and it made me begin to wonder if paying off the car might actually hurt my credit rather than help it.

I am so close with some of these scores, where just this morning paying down the one loan hit Experian and boosted my score 8pts from 694 to 702. From how they calculate your score between the agencies, I need another one to get above 700 and then I'm good, but I'm worried in the meantime it might do the opposite.

Anyone else have any experience with this?

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Hello and welcome to the forums.

It sounds like you are doing some very good things to get ready for your mortgage. Paying down or paying off debt is always a good thing IMO (In My Opinion).

Since you will still have a credit mix i.e credit cards and car loan you might not notice any impact from this and if so it will probably be minimal. Only time will tell.

This is just how I see it. That doesn't mean it's right for you. You''l likely get other views and you'll need to take it all in and make the final decision about what will work best for you.

Good luck with your mortgage!!

ETA: NewGuy beat me to it!!

[CH-7-Mission-Accomplished]

you should be okay since you have the other car loan for your installment loan in the credit mix.  The only other thing you might do is pay down that revolving to 1% and make sure it's only on one credit card!  You can eke out a few points this way ... 10% is good, 1% is better for FICO on revolving.

[skigirl916]

I was just going to ask this same question!

My car loan is almost paid off, but I have student loans that will last me a long, long time.  So hopefully when my car is paid off, I won't take a hit?

[MarineVietVet]

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@skigirl916 wrote:

I was just going to ask this same question!

My car loan is almost paid off, but I have student loans that will last me a long, long time.  So hopefully when my car is paid off, I won't take a hit?

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No one can say for sure. But look at the glass as half full. You'll have one less debt!!!

[Anonymous]

Thanks for the pointers. Breathing a small sigh of relief. Mortgage application is being sent in to underwriters today to begin the whole review process.

[-NewGuy-]

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@Anonymous wrote:

Thanks for the pointers. Breathing a small sigh of relief. Mortgage application is being sent in to underwriters today to begin the whole review process.

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Fingers crossed for a positive outcome!