topic Re: FICO drop or will it be a wash? in Understanding FICO® Scoring

FICO drop or will it be a wash?

CAS2019 — Fri, 21 Dec 2018 16:31:33 GMT

Hi! I hope this is the correct forum topic, if not, I apologize. I am in the middle of escrow, and everything has been going extremely well. However, this afternoon I received a call

from the lender and they are requiring that a car loan be paid off. I don’t have any issues with this, but it’s only five mos. old (car loan). I have a very short/thin credit file as I started in April of this year. The (car) loan will be paid at closing. My question is, will my FICO score take a big hit with the loan being paid off or will it be a wash since the mortgage will be added?

my information is as follows:

FICO 8 scores: EX 703; EQ 730; TU 708

Car loan: $5192 as of today, opened 8/1/2018

Cap1 Secured CC $0./$500. Opened 4/1/2018

Sync TJMaxx CC $0/$500. Opened 10/1/2018

Chase Amazon Prime Sig VISA $0/$5400. Opened 10/1/2018

Chase Freedom $270/$5400. Opened 10/1/18

I always PIF, and my utilization tends to be anywhere between 3% to 6%.

Sincere thanks!

Re: FICO drop or will it be a wash?

Anonymous — Fri, 21 Dec 2018 02:18:25 GMT

With a mortgage replacing the auto you will be fine. Might take a hit temporarily if there is a gap between one leaving and the other being reported.

Re: FICO drop or will it be a wash?

CAS2019 — Fri, 21 Dec 2018 02:37:05 GMT

@Anonymous wrote:
With a mortgage replacing the auto you will be fine. Might take a hit temporarily if there is a gap between one leaving and the other being reported.

Thank you so much, Brandon

Re: FICO drop or will it be a wash?

HeavenOhio — Fri, 21 Dec 2018 15:22:39 GMT

@CAS2019, don't do anything until you get more opinions. Other than bringing down credit card balances (yours are great), changing things up in the middle of the mortgage process is risky.

We don't know the original loan amount, so we don't know how FICO 8 will react. The probable direction for it to head is down, though. Mortgage scores are much less likely to change negatively, but one of them may.

I'm assuming this is a DTI thing. I'd feel safer reducing the loan balance to under 8.9% of the original loan amount rather than closing it entirely.

Re: FICO drop or will it be a wash?

CAS2019 — Fri, 21 Dec 2018 16:34:56 GMT

@HeavenOhio wrote:
@CAS2019, don't do anything until you get more opinions. Other than bringing down credit card balances (yours are great), changing things up in the middle of the mortgage process is risky.

We don't know the original loan amount, so we don't know how FICO 8 will react. The probable direction for it to head is down, though. Mortgage scores are much less likely to change negatively, but one of them may.

I'm assuming this is a DTI thing. I'd feel safer reducing the loan balance to under 8.9% of the original loan amount rather than closing it entirely.

Thank you Heaven! It is a DTI thing and I did ask re paying down the loan, but the lender wants it paid in full. I figured since it was a relatively small auto loan, they would be amenable to this—but no go. So, I am stuck paying it off at closing (we are two weeks away). My feeling was I would take a big hit because my credit file is so limited. Like many on this forum, I am obsessed with my scores, and although intellectually I understand FICO scores aren’t static and can change from day to day, it aggravates me to no end when one or all dips just a couple of points—I can only imagine if it dips a lot!

i completely forgot, the mortgage loan is $193,000–which is a relatively small mortgage in SoCal. I am on a fixed income ($50,000) which is probably a main component in all of this.

i guess the silver lining would be one less monthly payment (by paying off the car loan).

I gain so much knowledge from this forum, and I truly feel I don’t know what I would do without it. Again a big THANK YOU for everyone’s expertise!

I wish everyone and your’s, a very safe and joyous holiday week!

Re: FICO drop or will it be a wash?

HeavenOhio — Fri, 21 Dec 2018 16:44:45 GMT

@CAS2019, my only concern would be setting yourself up for a possible score decrease when you're pulled at closing. But if you're paying off the loan on your closing date, maybe it's a non-factor as the account will still be active on your reports when you make the payoff.

I'd still like to hear from the gurus on this. The good news is that you're not required to make a payment without time to wait for more advice.

Re: FICO drop or will it be a wash?

DollyLama — Sat, 22 Dec 2018 12:13:19 GMT

I'm with Heaven's reply on this topic. I do understand the DTI. Evidently it is now contingent upon the payoff. What is your middle mortgage score? They are not using FICO 8s. Just wondering if you were on the cusp of qualifying and how detrimental the absence of the loan will affect once you are rapid rescored prior to closing.

Do you know if you are just to provide proof from lender that account is paid off? Or ask the UW if doing a rapid rescore and your middle mortgage should drop, how this will affect your eligibilty of obtaining the mortgage.

Re: FICO drop or will it be a wash?

CAS2019 — Sat, 22 Dec 2018 14:10:51 GMT

@DollyLama wrote:
I'm with Heaven's reply on this topic. I do understand the DTI. Evidently it is now contingent upon the payoff. What is your middle mortgage score? They are not using FICO 8s. Just wondering if you were on the cusp of qualifying and how detrimental the absence of the loan will affect once you are rapid rescored prior to closing.

Do you know if you are just to provide proof from lender that account is paid off? Or ask the UW if doing a rapid rescore and your middle mortgage should drop, how this will affect your eligibilty of obtaining the mortgage.

My FICO middle score (for mortgage) was 701, MyFICO showed 703, so, it was only a couple of points off.

The check at closing, will include the payoff. It’s to assure the lender the loan has been paid. It was explained to me, sometimes it takes the holder of the (in this case, car) loan some time to get the necessary documents to them, hence paying at closing will eliminate the uncertainty. I’m not clear, however, if the escrow company pays it off or the lender. I’m assuming it would be the escrow company, though? I’m a first time home buyer, so all of this is quite educational.

Also, the final credit score pull will be a soft pull, and not hard (I asked),

Re: FICO drop or will it be a wash?

DollyLama — Sat, 22 Dec 2018 14:18:01 GMT

Can you post this in the mortgage loan section, only the part about closing 2 weeks, need payoff car loan, and will be paid at closing.

There are mortgage lenders there that would be able to direct you more. I am not, but wondering if you should get the payoff amount and send it on in with escrow now to cover the amount. You definitely do not need to be rolling the car payoff into the mortgage loan over many years with interest and higher monthly payments. They may just have you write a check payable to auto lender for the payoff in hand seperately.

Just note that not until the mortgage is fully funded, if you are anticipating buying appliances or such to not sign on dotted line, get keys and go to the store, they can still check your files, which will mess up your loan.

Re: FICO drop or will it be a wash?

HeavenOhio — Sat, 22 Dec 2018 14:25:24 GMT

@CAS2019, I think you're going to be fine. This setup would seem to eliminate the possibllity of causing a scoring surprise before closing.

Apart from the mortgage, make sure that you track the loan payoff diligently. We've seen cases where people buy a new car and the dealer is supposed to pay off the old loan. Then they don't, and the customer gets hit with a 30-day late. Be prepared to make another monthly payment on the loan if necessary. If the car loan ends up being overpaid, your money will be refunded.

Re: FICO drop or will it be a wash?

CAS2019 — Sat, 22 Dec 2018 14:26:06 GMT

@DollyLama wrote:
Can you post this in the mortgage loan section, only the part about closing 2 weeks, need payoff car loan, and will be paid at closing.

There are mortgage lenders there that would be able to direct you more. I am not, but wondering if you should get the payoff amount and send it on in with escrow now to cover the amount. You definitely do not need to be rolling the car payoff into the mortgage loan over many years with interest and higher monthly payments. They may just have you write a check payable to auto lender for the payoff in hand seperately.

Just note that not until the mortgage is fully funded, if you are anticipating buying appliances or such to not sign on dotted line, get keys and go to the store, they can still check your files, which will mess up your loan.

Oh, to clarify, the loan payoff won’t be rolled into the mortgage. I have to give them a check in addition to the closing costs.

How do I move this to the mortgage forum? TBH, when I first started this thread, I wasn’t certain which one I should post it in. I need to start listening to my intuition!

Re: FICO drop or will it be a wash?

CAS2019 — Sat, 22 Dec 2018 14:28:34 GMT

@HeavenOhio wrote:
@CAS2019, I think you're going to be fine. This setup would seem to eliminate the possibllity of causing a scoring surprise before closing.

Apart from the mortgage, make sure that you track the loan payoff diligently. We've seen cases where people buy a new car and the dealer is supposed to pay off the old loan. Then they don't, and the customer gets hit with a 30-day late. Be prepared to make another monthly payment on the loan if necessary. If the car loan ends up being overpaid, your money will be refunded.

Oh, VERY good point! I will, especially since the car loan is with a small credit union (I’ve had a couple of issues with them once the car loan went through).

Thanks!

Re: FICO drop or will it be a wash?

Thomas_Thumb — Sat, 22 Dec 2018 21:20:55 GMT

@CAS2019 wrote:
Hi! I hope this is the correct forum topic, if not, I apologize. I am in the middle of escrow, and everything has been going extremely well. However, this afternoon I received a call
from the lender and they are requiring that a car loan be paid off. I don’t have any issues with this, but it’s only five mos. old (car loan). I have a very short/thin credit file as I started in April of this year. The (car) loan will be paid at closing. My question is, will my FICO score take a big hit with the loan being paid off or will it be a wash since the mortgage will be added?

my information is as follows:
FICO 8 scores: EX 703; EQ 730; TU 708
Car loan: $5192 as of today, opened 8/1/2018
Cap1 Secured CC $0./$500. Opened 4/1/2018
Sync TJMaxx CC $0/$500. Opened 10/1/2018
Chase Amazon Prime Sig VISA $0/$5400. Opened 10/1/2018
Chase Freedom $270/$5400. Opened 10/1/18

I always PIF, and my utilization tends to be anywhere between 3% to 6%.

Sincere thanks!

Your score may drop 5 to 10 points depending on the current balance to loan ratio on your Auto. When your mortgage reports your B/L ratio will be 100%. If your Auto loan has a B/L less than 70% you may be realizing a few points the reduction inB/L. If so, those will disappear when the loan is paid off and the mortgage reports.

Re: FICO drop or will it be a wash?

CAS2019 — Sun, 23 Dec 2018 04:30:42 GMT

Thanks, Thomas. Unfortunately, I have only made five payments on the car loan (it was opened in August), so I should expect then, a 5 to 10 drop in my score? I don’t know why I’m so worried over the drop, as I’m not planning on applying for any more cc’s until my oldest cc ages at least one year anyway.