Will paying off my entire auto loan in one lump sum have any effect on my credit scores?

[Anonymous]

Hello All,

I just recently registered on these boards after lurking for a few months. I've been in the process of working on my credit and have recently brough my scores up to the 700-720 range. I currently have a $13,000 auto loan at 5.25%. I've been paying in full and on time every month for the past 15 months. I have been aggressively saving money and now have the ability to pay off the entire loan in one lump payment. My question is: if I were to pay off the entire loan, how would that effect my credit score? I currently don't have any real credit history - I just recently was approved for a Capital One Quicksilver card back in March and had a CLI bring the limit to $800. And over the weekend I was approved for an Amex Delta Gold card. Aside from that, I have no credit history since 2009 where I paid off a Chase card that went to collections. 

It was my understanding that my credit is directly tied to the age of my various accounts - so as silly as it sounds, I'm concerned that paying off the auto loan in full may have a not-so-positive effect on my score.

Hope this question makes sense - I look forward to participating more on the boards now that I finally made an account

[RonM21]

Welcome to the forums!

Looks like you've been doing well on your credit!

So, if you pay it off, you may lose some points if you do not have another installment loan reporting. This is because it can effect your credit mix. It is just the way the scoring works. I know you would think paying it off should be a good thing, and it is. But the scoring can be confusing. Now, if you do have another installment loan reporting, then it shouldn't really be an issue.

[Revelate]

Why not just pay the loan almost entirely down but not quite off?  Say to $20 or whatever?

It's almost assuredly a simple interest loan, so interest is only calculated off principle, but they may let you keep the loan hanging out for a while (most lenders seem to do this, we only have seen 2 that don't) and get pretty much all of the upside of paying off the loan, with none of the credit downside?

[Anonymous]

Wow, thanks for the tip. 

Do credit scores take into consideration the $ amount of the loan? So for example, my $13,000 loan is weighted heavier than if I paid $12,000 in one lump sum, bringing the loan down to $1,000?

[FeeBear]

Hey Wood (that sounds dirty somehow)

       The knock is small on your credit score, if you can pay it off pay it off.  This account will continue to be on your report for 10 years and will hlp in other ways.

Fee

[pipeguy]

In January of this year (2016) I paid off a car note to $00 which was about $14k the result was a 28 point loss on my score even though I had another current not paid off car note. Within a month or two my score recovered 24-26 points and when I added a new car note in early March my score went up another 4-6 points so in fact I gained by taking a larger loan. Today one of the "factors" that so-called ding my report is that my loan balance is high based on the original loan ($29,500 on a $42000 car, currently paid 2 months ahead and about $27k balance). Fact is, they list that as a factor, but my scores are actually up (current range 765 to 801), so I would not worry about it too much either way - you are paying 5.99% and that money in savings is getting you what? less than 1% so if a 5% return makes sense, pay it off - the history will remain on your report.

[SouthJamaica]

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@Anonymous wrote:

Hello All,

I just recently registered on these boards after lurking for a few months. I've been in the process of working on my credit and have recently brough my scores up to the 700-720 range. I currently have a $13,000 auto loan at 5.25%. I've been paying in full and on time every month for the past 15 months. I have been aggressively saving money and now have the ability to pay off the entire loan in one lump payment. My question is: if I were to pay off the entire loan, how would that effect my credit score? I currently don't have any real credit history - I just recently was approved for a Capital One Quicksilver card back in March and had a CLI bring the limit to $800. And over the weekend I was approved for an Amex Delta Gold card. Aside from that, I have no credit history since 2009 where I paid off a Chase card that went to collections. 

It was my understanding that my credit is directly tied to the age of my various accounts - so as silly as it sounds, I'm concerned that paying off the auto loan in full may have a not-so-positive effect on my score.

Hope this question makes sense - I look forward to participating more on the boards now that I finally made an account

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1. Your score will go down if you pay it down to zero, but will improve if you just pay it down to $1100 or less (but more than zero).

2. If you then take out a share secured loan for $500 at a credit union like Alliant, pay that down to $45, you can then close out your auto loan account to zero and you should be ok.

[Anonymous]

I just paid my car off & it dropped my experian score by 27 points.

[Revelate]

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@Anonymous wrote:

Wow, thanks for the tip. 

Do credit scores take into consideration the $ amount of the loan? So for example, my $13,000 loan is weighted heavier than if I paid $12,000 in one lump sum, bringing the loan down to $1,000?

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It's all aggregate, basically want your (aggregate installment loan balances / aggregate installment loan original balance) < 9%, anything less than that but non-zero seems to be fine.

I haven't found any difference between a $500 secured installment loan and a ~250K mortgage frankly under FICO 8, may be different for FICO NextGen (2003) or earlier but those are kinda irrelevant at this point.