Credit score drop after car loan

[Anonymous]

My Transunion credit score dropped from 818 to 788 after getting an auto loan. The loan was for $12,200 for 3 years. So far I’ve made 2 monthly payments of about $700 total. My TU credit report has 0 inquiries and 0 negatives, but both Discover and Capital One report my balances are too high and that's lowering my score. My Equifax and Experian reports both have 2 inquiries due to the loan and dealer, so I’m expecting my score to be even lower on those reports.

I got a $3000 bonus from work. If I put that towards the car loan (Penfed), would that improve my credit score? Or should I just keep making the normal monthly payments and wait it out? I will start looking for a house in the summer so I want to be above 750 on all my credit reports. Thanks.

[Appleman]

If I am reading your post correctly you have balances reporting on your Discover and Cap1 and that is lowering your score? If that is the case I would think paying down the credit card debt to improve your score.

Many posters will tell you that you should let one credit card report a balance and that it should be between 1 and 9% of the credit line for that card. So even if you pay in full each month, you may want to payoff all except the 1% on one card every month.

You will need to see how much money you will need to close on the house. My guess is that you would look better to the bank having the extra $3,000 in your account versus paying the car note down. As you mentioned, waiting it out may be best.

Finally, do you know who you will likely use as a lender for your mortgage? Talking to them now (I probably would not let them pull credit), they may have some advice for you. Remember they want to get you approved as well. You could certainly print out a 3B credit report from myFICO and hand carry that in with you. Even though your scores will likely be different when you actually apply, they would give the mortgage broker/lender a good idea of where you stand.

[Anonymous]

Hi Appleman. Thank you for your reply and kind advice. I should have clarified, the balances are not credit card balances, they are just balances in general. I didn't see this message until I got the auto loan. I always pay my credit cards in full when the statement gets mailed and my utilization is typically 1-2% and never over 5%. The balances are the car loan, which is 95% unpaid since it's so new.

We are planning on buying a house and we plan to give 20-30% downpayment so an extra 3k won't make much of a difference for the downpayment, but if it makes a sizeable change to my credit score by paying down more of the auto loan, I'd like to do that.

I have talked to several lenders and they are saying a credit score of 750 likely qualifies for the best rate as long as my income is reasonable. They normally say put down any amount I feel like doing, they don't really care if it's 5% or 25% at this point. They know I'm shopping so maybe they're just saying generic advice until they know I'm commited to choosing them as the lender.

[Anonymous]

Amount you put down for down payment for house will depend on loan you get and the monehtly payment. Doing 20-30% u won't be paying PMI unless you way over pay for house. Meaning you paid way over market value for house. With 3-5% down most likely you will be paying PMI

[C7LT1]

When I brought my house in Nov 2014. I was pre-qual with both USAA and NFCU. Both loan officers said the same thing regarding installment loan. The balance on a installment loan does not effect your DTI (Debtt-to-income) because they go off of the required monthly payment to calculate your DTI. Since your monthly payment is not effect by the lowing the balance on a installment loan it has not effect on your DTI. They use your DTI to determine house much house they are willing to approve you for. If you income supports it you could have $1000 car note and still be approved for a $500,000 house.

In my case I had 4 installment loans at the time of my home loan application and they still approved me for $325k which I only need roughly $200K to buy a nice home. Its a question how much income you have in compared to how much debt you have out.

Call up your loan officer and they will tell you exactly what to do with that $3k to get you in the best loan. In my experience home loan officers are nothing like the finance manager at a dealerships. Trust but verify is my model.

IMO only if you needed to lower your DTI to quailify for a bigger home loan and you could pay the car off before you applied would I use the $3k to pay down the car. 

PS with a 788 score and 20-30% down I would not stress over whats going to raise or lower score. Just don't be late on a payment between now and closing.