@Anonymous wrote:Hi all, seeking some advice. I have a Fico score of 777, 24 years old, perfect payment history on credit cards for the past 5 years.
I had a $15,500 loan taken out when I bought my motorcycle just under 2 years ago, it was a 6 year loan but I have payed it off very fast, I owe $5,000 on it. My question is to better my credit what is the best thing to do with this remmaining $5,000 of the loan? I could pay it off if need be, or should I start making lower payments to stretch out the payments to continue my good history?
Also FYI this is the only "debt" in my name besides the 2 monthly credit cards I pay off in full at the end of each month. This will most likely be the last of my "debt" besides credit cards for the next for years until I buy a house.
Thanks ahead for any help! Happy New Year!
1. From a pure FICO score perspective the best thing would be to pay it down to $1300, and then pay small amounts for the next 4 years.
2. But wouldn't it be nice to get the clean title? An alternative strategy which would let you pay off the motorcycle loan off without losing FICO points would be the following:
Join Alliant Credit Union, take out a $500+ savings account, take out a $500 share secured loan secured by the savings account with a 48 or 60 month term, decline or cancel autopay, transfer $455 from the savings account towards the loan balance bringing the balance down to $45.
Then pay off the motorcycle loan.
@Thomas_Thumb wrote:
@Anonymous wrote:Hi all, seeking some advice. I have a Fico score of 777, 24 years old, perfect payment history on credit cards for the past 5 years.
I had a $15,500 loan taken out when I bought my motorcycle just under 2 years ago, it was a 6 year loan but I have payed it off very fast, I owe $5,000 on it. My question is to better my credit what is the best thing to do with this remmaining $5,000 of the loan? I could pay it off if need be, or should I start making lower payments to stretch out the payments to continue my good history?
Also FYI this is the only "debt" in my name besides the 2 monthly credit cards I pay off in full at the end of each month. This will most likely be the last of my "debt" besides credit cards for the next for years until I buy a house.
Thanks ahead for any help! Happy New Year!
I suspect age of auto loan could be a consideration in points gained associated with a reduction in balance to loan ratio. The general belief is an open installment loan at a low B/L ratio is worth 30 or 35 points on Fico 08. The threshold for points maximization (excluding mortgage loans) on aggregated open loans is under 9% remaining. It is a widely held belief that the "vast majority" of points are only awarded once your B/L drops below 9%.
SJ saw this with his auto loan testing at various B/L ratios. However, his auto loan was less than a year old when he did the incremental paydowns.As I recall, he reported gaining around 30 points with a paydown from over 30% B/L to under 9% B/L. Given your loan is over 12 months old, I suspect your score has been positively impacted by loan age alone leaving fewer points of benefit remaining for pay down under 9%.
If you are up for it, pay down your loan to $1300 and report back on impact on your Fico score. This should maximize your score relative to benefit of an open installment loan. My guess is your score may rise by 15 points instead of 30 points because some benefit has already been realized by aging.
After the pay down you could potentially maintain the auto loan as open with reduced payments or pay it off and get a token SSL.
When I paid the auto loan down so that aggregate installment utilization dropped from 39 to 9% the FICO 8 point gain was as follows:
EQ +24 TU +24 EX +20
Along the way I had picked up a few other points here and there during the 6 month duration of my auto loan:
Crossing 80% (from 87.7% to 79.1%) : EQ +2 TU +2 EX +2
Crossing 70% (from 79.1% to 68.8%) : EQ +3 TU +8 EX +-0
Crossing 60% (from 68.8% to 58.4%): EQ +-0 TU +-0 EX +-0
Crossing 50% & 40% (58.4% to 39%): EQ +2 TU +-0 EX +2
Crossing 30%, 20%, & 10% (39% to 9%): EQ +24 TU +24 EX +20
Paying down from 9% to zero: EQ +-0 TU +-0 EX +-0
@Anonymous wrote:Hello JG69! Just for clarity, both of the previous posters are suggesting the same thing. They are both suggesting you consider executing the Share Secure Loan Technique and then (after that) pay off the the loan. The link you were given explains the details and more importantly will explain the theory behind why it works. You just need to read the first 2-3 posts in that thread.
My only slight caveat would be to consider prolonging the life of the loan until at least 25 payments have been made on it. I can't prove that would help you in any way, but I can imagine underwriters or even scoring models liking installment loans that lasted at least 25 months.
As SouthJ points out, there may be an ancillary benefit from owning the title -- not related to credit scoring. In particular, it might be the case that while the bank owns the title, you are required to have a more expensive insurance package on the vehicle -- and after the title belongs to you, cheaper options might present themsleves (e.g. a liability only policy).
I also like the suggestion of obtaining a third credit card.
I'm a simple man, I was just thinking it feels good to have a clean title 
@newhis wrote:
@SouthJamaica wrote:When I paid the auto loan down so that aggregate installment utilization dropped from 39 to 9% the FICO 8 point gain was as follows:
EQ +24 TU +24 EX +20
Along the way I had picked up a few other points here and there during the 6 month duration of my auto loan:
Crossing 80% (from 87.7% to 79.1%) : EQ +2 TU +2 EX +2
Crossing 70% (from 79.1% to 68.8%) : EQ +3 TU +8 EX +-0
Crossing 60% (from 68.8% to 58.4%): EQ +-0 TU +-0 EX +-0
Crossing 50% & 40% (58.4% to 39%): EQ +2 TU +-0 EX +2
Crossing 30%, 20%, & 10% (39% to 9%): EQ +24 TU +24 EX +20
Paying down from 9% to zero: EQ +-0 TU +-0 EX +-0
I think I read that you have other loan, I guess if this was your only loan your score should go down around 25 points, right?
Just want to make this clear.
Correct. This all transpired while I had my little SSL on the side. To me this proved that my $500 no-hassle, low-cost, no-indebtedness SSL was just as effective as my $12,500 auto loan. And I'm sure that without the SSL I would have gotten slammed at the end.