topic Re: Paying off loans and the impact on AAoA in General Credit Topics

Paying off loans and the impact on AAoA

Anonymous — Thu, 10 May 2018 22:27:16 GMT

I’m currently about 8 months in to my rebuild, been following here the whole time and just getting started on the next steps now. Here are my current accounts:

Discover (unsecured): $40 / $2,500, 7 months old
Capital One (Secured): $0 / $1,000, 6 months old
Local Credit Union (Secured): $0 / $500, 6 months old

Student Loan 1: $1,340 / $5,037, 14 yrs 1 mo old
Student Loan 2: $1,737 / $6,490, 14 yrs, 1 mo old

Auto Loan: $10,380, 48 months old ($470 / month)

AAoA = 5 Years, 8 Months
Inquiries: Between 1 and 2, depending on the Bureau
Current F8 Scores: 709 TU, 703 EX, 718 EQ – (Starting Scores 8/2017 = 588, 574, 579)

(All accounts are 100% on-time except for the auto loan where the most recent late was 13 months ago)

Next steps, and questions:

I’m considering trading in that auto loan (17% interest!) and buying something for cash.

Also, the local Credit Union secured card doesn’t ever graduate. Should I consider closing it since it’s only about 6 months old?

Also, I’ll be looking to purchase a home in about 8 to 12 months or so, if that affects any of the opinions here….

Re: Paying off loans and the impact on AAoA

shadanat — Fri, 11 May 2018 17:24:20 GMT

Would it be detrimental to my longer-term plans to lose that 4-year-old loan from my AAoA? Instead of cash would it be better to take a small loan of about $4,000 to replace the old one and help with my overall credit mix? No it will not be deterimental. Your payment history weighs more than your AAoA and that will stay on your report for 10 years. Because you have student loans, you really don't need to carry an additional installment loan. Also, I wouldn't take the loan out because it could throw your debt to income ratio off if you are looking to get a mortgage within a year.

Also, the local Credit Union secured card doesn’t ever graduate. Should I consider closing it since it’s only about 6 months old? If this card does not have an annual fee associated with it, I would keep it. You should have at least three cards reporting to optimize your score. Maybe put a small re-occuring charge on it (Netflix, Hulu, etc) to continue to build your relationship with the credit union. Even though this card doesn't graduate, the CU may send you a pre-approval for an unsecured card based on the history with this card.

Also, I’ll be looking to purchase a home in about 8 to 12 months or so, if that affects any of the opinions here….

Re: Paying off loans and the impact on AAoA

Anonymous — Mon, 14 May 2018 01:47:13 GMT

Nice response from Shadanat.

Your AAoA question is based on the idea that only open loans count toward FICO's age-related factors. This is untrue. Moreover, the account will continue to age even after it is closed, so closing it will have no effect on your AAoA in the next several years.

Will your two student loans still be open by the time you buy your house? Hopefully the answer is yes.

And yes, keep the third credit card open, given that you have a home purchase in the next year. Finally, do not apply for any more accounts until after you own the new home.

Re: Paying off loans and the impact on AAoA

SouthJamaica — Mon, 14 May 2018 01:57:37 GMT

@Anonymous wrote:
I’m currently about 8 months in to my rebuild, been following here the whole time and just getting started on the next steps now. Here are my current accounts:

Discover (unsecured): $40 / $2,500, 7 months old
Capital One (Secured): $0 / $1,000, 6 months old
Local Credit Union (Secured): $0 / $500, 6 months old

Student Loan 1: $1,340 / $5,037, 14 yrs 1 mo old
Student Loan 2: $1,737 / $6,490, 14 yrs, 1 mo old

Auto Loan: $10,380, 48 months old ($470 / month)

AAoA = 5 Years, 8 Months
Inquiries: Between 1 and 2, depending on the Bureau
Current F8 Scores: 709 TU, 703 EX, 718 EQ – (Starting Scores 8/2017 = 588, 574, 579)
(All accounts are 100% on-time except for the auto loan where the most recent late was 13 months ago)

Next steps, and questions:

I’m considering trading in that auto loan (17% interest!) and buying something for cash.

Would it be detrimental to my longer-term plans to lose that 4-year-old loan from my AAoA? Instead of cash would it be better to take a small loan of about $4,000 to replace the old one and help with my overall credit mix?

Also, the local Credit Union secured card doesn’t ever graduate. Should I consider closing it since it’s only about 6 months old?

Also, I’ll be looking to purchase a home in about 8 to 12 months or so, if that affects any of the opinions here….

1. Since you still have the 2 student loans, losing the auto loan shouldn't hurt your FICO 8 score too bad, and probablly won't hurt your mortgage scores at all. Plus losing it will help your Debt to Income ratio, which is very important to your upcoming mortgage application. So go for it.

2. Since you're looking to purchase a home in 8 to 12 months you should not apply for any new credit at all.

3. There's nothing to be gained by dropping the secured card, so let it be.