topic Re: Paying off a loan in Understanding FICO® Scoring

Paying off a loan

Anonymous — Wed, 06 Feb 2019 02:08:21 GMT

Hello. I have two loans one is with the lending club and the other is with a bank for a car loan.
I can pay off the lending club loan 10 months early but what I need to know if this will effect my score in a bad way?
I am looking to buy a home this spring or early summer and I really want to get rid of this payment if it will not hurt my score.
Any help would be greatly appreciated.
Thank you.

Re: Paying off a loan

SouthJamaica — Wed, 06 Feb 2019 02:50:16 GMT

@Anonymous wrote:
Hello. I have two loans one is with the lending club and the other is with a bank for a car loan.
I can pay off the lending club loan 10 months early but what I need to know if this will effect my score in a bad way?
I am looking to buy a home this spring or early summer and I really want to get rid of this payment if it will not hurt my score.
Any help would be greatly appreciated.
Thank you.

It probably won't have any seriously adverse effect on your mortgage scores. It might have some slight adverse effect on one or two of them, but I would need to know the original loan amount and the present balance for both the lending club loan and the car loan to know.

It could possibly adversely affect some of the FICO 8 and FICO 9 scores in a more serious way, but again I would need to know the balance and the original loan amount on both loans to give you an answer.

Re: Paying off a loan

Anonymous — Wed, 06 Feb 2019 03:01:45 GMT

The lending club loan was for $6000 and payoff is $1875.
Car loan was for $12900 and pay off is at $5200.

Re: Paying off a loan

SouthJamaica — Wed, 06 Feb 2019 03:13:01 GMT

@Anonymous wrote:
The lending club loan was for $6000 and payoff is $1875.
Car loan was for $12900 and pay off is at $5200.

Presently aggregate installment loan utilization percentage is 7075/18900 = 37.4%

If you pay off lending club loan it will be 5200/12900 = 40.3%.

It would increase very slightly, so there is a slight possibility of an effect on the scores. But it's such a small change that I wouldn't sweat it. I doubt you would lose even a single point.

Much better to pay the loan off since that will help your income/debt ratio, which has no effect on your score but is a big, big issue with mortgage loan officers.

There is actually a weigh to juice up your FICO scores a little. It would have a substantial impact on the FICO 8 scores, and a smaller positive effect on the mortgage scores. If instead of taking $5200 and paying off the lending club loan entirely you were to take $5374, and apply it to both loans, leaving them both open, that would take your aggregate down to 9%, which is like rocket fuel for the FICO 8's, and will give some more modest boost to one or two of your mortgage scores.