topic Re: Paying Off Car Loan Lower FICO Score? in Understanding FICO® Scoring

Paying Off Car Loan Lower FICO Score?

Anonymous — Sun, 27 May 2012 20:11:02 GMT

My FICO score is borderline excellent, just above 760 and I'll be buying my first home in September/October 2012. Will paying off my car loan lower my FICO score?I'm worried because a slight decrease will lower my FICO from the 'Excellent' to 'Good' range.

My problem is that I probably need to pay off my car loan before I get a home mortgage loan because my car loan will make my Back-End Debt-To-Income ratio too high.

I've heard that paying off a car loan will lower a FICO score because it decreases the variety of credit instruments. If I have to pay the car loan off, when should I do it? Right after I get pre-qualified for a mortgage loan or right after?

Re: Paying Off Car Loan Lower FICO Score?

marty56 — Sun, 27 May 2012 21:04:55 GMT

If DTI is an issue here, then DTI trumps FICO in your case. You may loose some point but I don't think enough to make a difference the loan APR. Ven if it did and you wanted to stay in the home forever, you could always refi or refi to a short loan later if you could afford to do so. When I refied my first mortage, I took a FICO score hit to be at 0% util.

Re: Paying Off Car Loan Lower FICO Score?

pizzadude — Sun, 27 May 2012 21:26:34 GMT

@Anonymous wrote:
My FICO score is borderline excellent, just above 760 and I'll be buying my first home in September/October 2012. Will paying off my car loan lower my FICO score?I'm worried because a slight decrease will lower my FICO from the 'Excellent' to 'Good' range.

My problem is that I probably need to pay off my car loan before I get a home mortgage loan because my car loan will make my Back-End Debt-To-Income ratio too high.

I've heard that paying off a car loan will lower a FICO score because it decreases the variety of credit instruments. If I have to pay the car loan off, when should I do it? Right after I get pre-qualified for a mortgage loan or right after?

I agree with Marty that DTI may be the more important issue ~ however installment debt utilization is a very minor part of FICO compared to revolving utilization so it shouldn't make much difference ( if any ) in your score. Also, even as a closed loan it will still contribute positively towards your mix of credit.

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Sun, 27 May 2012 22:28:23 GMT

AlexDMV, if you want to wait a few days, I'll have a report of my own... The paid off account already reported to EX, just waiting for EQ so I can see the before and after. Or, MyFICO can just start showing EX scores

Re: Paying Off Car Loan Lower FICO Score?

marty56 — Sun, 27 May 2012 23:28:21 GMT

@Anonymous wrote:
MyFICO can just start showing EX scores

Dec 21, 2012. Marty gets an 849 EX FICO score from MyFICO. Lost 1 point for being left behind.

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Mon, 28 May 2012 16:03:57 GMT

Thanks very much, that would be great to see the effect and I greatly appreciate the help.

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Wed, 30 May 2012 00:54:54 GMT

Well, hang on Alex. The account updated on EX a week ago; it's still showing on EQ and TU... Any day now I hope, lest the AAoA bump might affect the results (from 5.3 to maybe 5.4 years; I don't expect that to have any real impact, but will technically be an additional change...)

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Thu, 31 May 2012 00:29:28 GMT

Well, much to my $20-lighter wallet's chagrin, my FICO score went from 698 to

...

698. No change to score at all. I confirmed the $3600 balance went from $3600 to zero, and the account shows as closed. No change in score. I have one other open auto note at $14k, but it was still a ~20% drop in installment util. Oh well, at least we know

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Thu, 31 May 2012 00:32:38 GMT

Alex,

If you have another type of installment loan (ie: student loan, Amex charge card, LOC) you scores may not be affected by paying off your auto loan. You only need 1 type of installment to meet the "credit mix" criteria.

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Sat, 02 Jun 2012 19:43:14 GMT

I believe closed installments still count towards your credit mix... Could be wrong.

Re: Paying Off Car Loan Lower FICO Score?

MarineVietVet — Sat, 02 Jun 2012 19:44:56 GMT

@Anonymous wrote:
I believe closed installments still count towards your credit mix... Could be wrong.

They do although open, active accounts are given more weight.

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Sat, 02 Jun 2012 19:52:05 GMT

@MarineVietVet wrote:
@Anonymous wrote:
I believe closed installments still count towards your credit mix... Could be wrong.
They do although open, active accounts are given more weight.

So all things equal, a report with a single closed installment will tend to have a slighlty lower score than a report with a single open installment (taking balance out of the mix)? Similar to revolving accounts falling into a "not active" state?

Re: Paying Off Car Loan Lower FICO Score?

MarineVietVet — Sat, 02 Jun 2012 20:30:09 GMT

@Anonymous wrote:

So all things equal, a report with a single closed installment will tend to have a slighlty lower score than a report with a single open installment (taking balance out of the mix)? Similar to revolving accounts falling into a "not active" state?

That's the way I understand it. But exactly how much "slightly" lower can mean is one of those YMMV situations.

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Wed, 06 Jun 2012 23:31:32 GMT

Interesting. I sold a car and paid off a small car loan I had that was open less than 12 months, and my score went up 10 points. YMMV

Re: Paying Off Car Loan Lower FICO Score?

ztnjpv — Thu, 07 Jun 2012 04:38:53 GMT

At 760, you have plenty of cushion for a small hit, IMHO, within the excellent range. My local bank's 2nd tier of rates starts at below 730 and it's a rather conservative bank.

Re: Paying Off Car Loan Lower FICO Score?

golo — Thu, 07 Jun 2012 18:55:20 GMT

I just paid mine last month and it didn't move.

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Fri, 08 Jun 2012 00:40:08 GMT

@golo wrote:
I just paid mine last month and it didn't move.

Me neither... But, the purpose wasn't to increase my score, it was to get rid of the payment... Much better IMHO

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Mon, 11 Jun 2012 06:28:42 GMT

Well if you pay off your car and it dosen't move then the only next logical thing to do it go buy a new motorcycle duh!!

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Mon, 11 Jun 2012 22:00:07 GMT

@Anonymous wrote:
Well if you pay off your car and it dosen't move then the only next logical thing to do it go buy a new motorcycle duh!!

Let me forward that to my wife and see what happens. I made the terribly unfortunate mistake of promising never to buy a motorcycle as a condition of marriage, and I've since whittled it down to, "Once the kids are all in college."

Re: Paying Off Car Loan Lower FICO Score?

Anonymous — Tue, 12 Jun 2012 00:03:59 GMT

Excellent thread...paid my loan of last Friday and was waiting to see the affects...Thanks guys!