topic Re: Car Loan Payoff in Understanding FICO® Scoring

Car Loan Payoff

Anonymous — Sat, 23 Feb 2008 01:11:28 GMT

Hi,

I have been reading the boards, and am starting to get a little nervous. I make my last car payment in about one week, and I am worried this will cause my score to drop based on some of the posts in the forums. Is this true??? My scores have improved nicely over the past 12 months, and I am concerned that the scores will now drop due to the car loan being paid off. Can anyone offer some insight?

Thanks!

Re: Car Loan Payoff

Anonymous — Sat, 23 Feb 2008 01:44:11 GMT

Do you have any other open installment accounts?

The small drop is IMO caused by the mix of credit-

If you have other installment accounts you have nothing to worry about-

Re: Car Loan Payoff

Anonymous — Sat, 23 Feb 2008 02:11:45 GMT

I do not have any other installment accounts. I have 3 CC's with small balances on them, and thats it. I had a home loan a few years ago, but sold the house and the loan was pif. No loan currently as I am in the market for a house, which is why I am concerned that the pay-off of my car loan will drop my score. I understand the reason behind it is the credit mix, but it just seems ridiculous to penalize someone for actually eliminating debt.

Re: Car Loan Payoff

RobertEG — Sat, 23 Feb 2008 02:57:22 GMT

You will lose a little in credit mix, with no other install loans, but the postive is that your % util of install loans will drop to zero, which should pick up about what you lose in credit mix. Credit mix is only 10%. Not highly significant. While total FICO %util is 30% of score, install util is around 5% of that 30%, so each will just about wash. And you are no longer paying interest on the install loan! A few FICO points up or down in FICO is not money in your pocket, and paying off a loan with no more interest due is a smile in the pocket!

You did right, unless you are planning to apply immediately for new revolv credit, and your immediate FICO score, plus or minus a few points each way, has any immediate meaning. Highly unlikely. Sit back, have a beer, and enjoy the loss of debt!!! Mortgage loans are not as highly pegged to FICO scores.

Congrats! You now know the game, just dont be concerned about the game each day. It is ONLY important when you actually need to apply for new credit. Other than that, FICO points are just ego, and not money.

And do not lose knowledge of the fact that, if you are about to apply for a mortgage loan, FICO is not the only factor evaluated by the mortgage officer. Showing that you are allmost debt free will have a lot more impact on your loan officer than a plus or minus five in your generic FICO score, which does not even take into accout income, total debt, family income, residency history, etc. They look, not just at FICO, but also at income/debt ratio, and you have nailed that bugger! You paid off, in full, an installment loan. that shows a lot more to a secured lendor.

I think you did exactly the right thing, based on where you are, and where you are going!

Message Edited by RobertEG on 02-22-2008 06:50 PM

Message Edited by RobertEG on 02-22-2008 06:57 PM