topic Re: Paying down debt balance in Understanding FICO® Scoring

Paying down debt balance

Anonymous — Mon, 25 Jan 2021 00:22:39 GMT

I want to pay down the existing debt on my car loan but don't know how much to pay down and will it in fact raise my FICO score. My score is in the good range and besides my auto loan, other debt is my mortgage. My score is lower because the age of my two accounts are only 4 years. Thanks

Re: Paying down debt balance

FinStar — Mon, 25 Jan 2021 02:48:28 GMT

Hi @Anonymous and welcome to the forums.

What is the term of the auto loan and what is the current balance? What are your current FICO scores across the board?

Re: Paying down debt balance

Anonymous — Mon, 25 Jan 2021 03:51:45 GMT

Thanks for your reply.

The loan is for 6 years, 2 years remaining, current balance is $7,700. Not sure what FICO scores across the board means. I see my score through my bank, currently is 731. My bank with this service also offers a What If re: credit scores. It says if I paid my installment loans off, only have the one, to zero, would increase my score by 3.

Re: Paying down debt balance

Anonymous — Mon, 25 Jan 2021 06:34:08 GMT

Paying off a loan isn't really a score-raising strategy. Paying down overall installment loan utilization significantly can result in a score gain, but even so you'd be looking at maybe 15-20 points tops and that gain would go away if/when all loans are closed. If you've got a mortgage in place it's probably comprising the majority of your installment loan utilization to the point that the auto loan is only a small/insignificant portion of the overall debt. That being the case, paying off/closing the auto loan in terms of overall installment loan utilization may not change things much. Having 1 less account with a balance could help a little (maybe a few points) but that wouldn't be enough of a reason for you to try and close it early.

Do you have any revolving (CC) debt? Depending on your balances if so, you may have some score-raising potential there. Revolving debt can be many times more impactful to your Fico scores than installment loan debt.

Re: Paying down debt balance

Bankrupt2019 — Mon, 25 Jan 2021 14:29:59 GMT

Is all you have in your credit file currently a mortgage and car loan or did I misunderstand?

Re: Paying down debt balance

Anonymous — Mon, 25 Jan 2021 15:19:29 GMT

Yes, that is correct.

Re: Paying down debt balance

thornback — Mon, 25 Jan 2021 15:30:38 GMT

@Anonymous wrote:
Yes, that is correct.

If the all you have reporting is an auto and mortgage loan, then your scores are lower due to a lack of revolving credit/utilization. You need to open a credit card to fulfill that portion of your credit mix for FICO scoring.

You have nothing else on your reports (no old closed accounts, incl. derogatories)?

Re: Paying down debt balance

Anonymous — Mon, 25 Jan 2021 17:16:09 GMT

Thanks for your reply.

No, I have nothing else on my reports (no old closed accounts, incl. derogatories).

Which or what kind of credit card would be best to fulfill that portion of my credit mix for FICO scoring.

Re: Paying down debt balance

thornback — Mon, 25 Jan 2021 17:38:50 GMT

@Anonymous wrote:
Thanks for your reply.
No, I have nothing else on my reports (no old closed accounts, incl. derogatories).
Which or what kind of credit card would be best to fulfill that portion of my credit mix for FICO scoring.

Any type of revolving credit card will do. You just need to determine whether you're interested in cash back rewards, travel rewards, or a simple no-frills low apr card. Also consider whether or not youre willing to pay an annual fee.. sometimes, with rewards cards,, the annual fee is worth it if your spend will be high enough to offset the cost. If you are unsure given your lack of credit experience, then stick with no-annual fee rewards cards for now til you come to better understand your spend habits and rewards benefits. Cashback is certainly the more straightforward rewards system.

Since you have a thin file with no revolving history, it's best to look into lenders that are known to generally be thin-file friendly such as Amex or Discover. You can use their pre-qualification tools and, if pre-qualified, apply. You can also check with your current banking institution to see what they offer since you've already developed a relationship.

Re: Paying down debt balance

HeavenOhio — Mon, 25 Jan 2021 19:42:13 GMT

Welcome, @Anonymous.

It's unusual to see a file like yours. We wouldn't have a lot of data as far as how credit card lenders will respond. But I would think that you should be eligible for some good cards and that you should be able to steer clear of secured cards and lousy unsecured cards.

As mentioned, check the pre-qual tools for AMEX and Discover. Those tools are pretty reliable. In particular, I'd bet on Discover offering you something good.

Additionally, check Chase, which is also reliable. The thing about Chase is that they're not known for issuing cards when one has no cards or when one's oldest card is less than a year old. But as we've said, we don't really have data points for files like yours.

I'm not sure how many cards you'd be interested in acquiring, but don't rush. You want your first card to be good, and you don't want your second card to be a step backward from that.

From a scoring standpoint, note that the addition of a credit card will reset the age of your youngest revolver to zero. That can be a significant hit. But with one's first card, the mere appearance of the card will likely offset that penalty and result in a net gain. Card #2 will also likely offset the new card penalty. Card #3 could go either way.

But you want to think in the long term. Most say that once new account penalties and inquiries age, three cards will optimize scoring. Some say five cards is better. So there'd be some pain for gain, so to speak.

If all you want is one card, that's fine. My suggestion would be to work your way up to three or so at a pace that makes both you and potential lenders feel confortable. There's no need to rush.

Re: Paying down debt balance

Anonymous — Mon, 25 Jan 2021 20:12:25 GMT

Thanks very much for reply and information.

Will using the pre-qual tools for AMEX and Discover count as an inquiry to my credit?

Re: Paying down debt balance

HeavenOhio — Mon, 25 Jan 2021 21:58:12 GMT

@Anonymous, your credit won't be affected by using pre-qual tools. These are soft inquiries. You're the only person able to see them on your credit report. They're not visible to other people, nor are they visible to FICO. Most of the time, when you subscribe to a credit monitoring service, that service won't see the soft inquiries either.

Hard inquiries occur when you submit applications for cards. Hard inquiries will be visible to anyone who views your report and are scorable.

Depending on the bank, requests for credit limit increases may trigger a hard inquiry. Some banks will do a soft inquiry or use information from your most recent account review.

Re: Paying down debt balance

Anonymous — Tue, 26 Jan 2021 03:39:21 GMT

OP, on the last page you referenced a 731 score from your bank. Do you know what specific score that is? If you go to the screen where you see that score somewhere near it or if you scroll down on the page you should see something to the tune of, "Fico Score 8 using TransUnion data" for example. It should reference either TU, EX or EQ for the bureau data used along with a scoring model. I'm just trying to get an idea of what you're working with. Below you'll see an image of what I'm talking about with the information circled.

That image BTW is from creditscorecard.com, a source you can sign up with to get your Fico EX8 for free monthly. If that's a different version than what you're getting from your bank, it would be good to sign up so that you know twice as many of your Fico scores.

Re: Paying down debt balance

Anonymous — Tue, 26 Jan 2021 03:53:34 GMT

The bank score shows: Powered by Experian in top left corner of page; then below the score of 731 it shows based on VantageScore® 3.0.

Experian score shows FICO Score 8 707, FICO Score 2 727.

Re: Paying down debt balance

Anonymous — Tue, 26 Jan 2021 03:57:06 GMT

@Anonymous wrote:
The bank score shows: Powered by Experian in top left corner of page; then below the score of 731 it shows based on VantageScore® 3.0.
Experian score shows FICO Score 8 707, FICO Score 2 727.

Good information above and thanks for getting back to us with that. You can throw the score from your bank out the window since it is of the VS variety, which is not a Fico score. Your EX Fico Score 8 is probably most relevant if you're considering a CC app, especially with a lender like Amex for example that uses that exact score. Your Fico Score 2 is a little less relevant than your Score 8, but still a good one to know.

Re: Paying down debt balance

Anonymous — Tue, 26 Jan 2021 04:15:48 GMT

Experian.com shows:

What's helping your score?

No Missed Payments

Not Seeking Credit

No Collection Or Public Record

What's hurting your score?

Short Account History

No Revolving Activity

No Credit Card Activity

I have banked with Chase for a long time, they offer CC with no annual fee, cash back and other good offers. Plus I am a veteran which Chase provides me with their best checking account. Thought about approaching Chase for CC. Not sure the FICO 8 707 is good enough to get CC from Chase. Thanks for your comments.

Re: Paying down debt balance

thornback — Tue, 26 Jan 2021 04:49:59 GMT

@Anonymous wrote:
Experian.com shows:
What's helping your score?
No Missed Payments
Not Seeking Credit
No Collection Or Public Record
What's hurting your score?
Short Account History
No Revolving Activity
No Credit Card Activity
I have banked with Chase for a long time, they offer CC with no annual fee, cash back and other good offers. Plus I am a veteran which Chase provides me with their best checking account. Thought about approaching Chase for CC. Not sure the FICO 8 707 is good enough to get CC from Chase. Thanks for your comments.

Chase favors relationship and there have been quite a few folks with scores in the low 700s approved for a Chase card as their first card after having a long term banking relationship. If you log into your online bank account and click on 'credit cards' from the drop down menu at the top of the page, you can see if there are any preselected/pre-approved offers for you. You can also try their pre-qualification page. Or, if you are able, stop in your local branch and speak with banker.

Re: Paying down debt balance

Anonymous — Tue, 26 Jan 2021 13:43:44 GMT

I think you'd probably be fine going for a card through Chase as described above. If you've banked with them for a long time that should only help.

Looking at your negative reason codes the lack of having an open CC is clearly adversely impacting your profile. I'm actually surprised that the CC-related negative reason codes aren't above short account history on your list.