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Paying off auto loan.

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Paying off auto loan.

Hello! I have 2 auto loans that that I am currently paying on. I have 2 years left on one of them and I am just under 1!yearvin the other. In the past, I have read some place that when you reach a certain mark (maybe 8% remaining on loan) that your credit score will increase and then decrease when paid off. Is that true? I am still rebuilding and stuck in the 500’s after some fanily and health issues. Thanks!
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Frequent Contributor

Re: Paying off auto loan.

The main reasons for drop in score after a vehicle is paid off is because it affects your average age of accounts it looks like since you will still be paying on the other one for an additional year you will not be as affected as some horror stories you may hear just keep working on it and if you have any Credit Cards or any Mortgage keep paying on that to keep you Accounts active longer you don't want to have to where you have no revolving history that will actually hurt you more than you think 

Starting Score: 537
Current Score: 725
Goal Score: 775


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Message 2 of 4
Frequent Contributor

Re: Paying off auto loan.


@Girlzilla88 wrote:

The main reasons for drop in score after a vehicle is paid off is because it affects your average age of accounts ...


Credit Mix is the part of the score that can be most dramatically affected when you go from having one open installment loan to zero open installment accounts (often a 20-30 point drop).  Because the OP will still have an open auto loan, this will not affect them yet -- although it could in the future when both auto loans have been paid if there are no other open installment type accounts on their credit reports, such as a mortgage.

 

Also, if you go from having two open loans down to one and the remaining balance of the one that is still open is over 89% of the original loan amount, you could see a temporary drop in your scores because your installment utilization is very high.  But because the OP says there will be approximately 1 year left on an auto loan when they are reduced to one installment account, this is probably an unlikely scenario -- by that time I would expect the loan to be below 49% utilization and score favorably, although perhaps not as favorably as the previous combined utilizaiton just before the other loan was paid off.

 



Message 3 of 4
Frequent Contributor

Re: Paying off auto loan.

If they are removing their oldest one though it will drop their score though this happened with me although I had a few open accounts when I paid off one of my vehicles my score did drop because I lost my oldest standing account and it affected my AAoA's that's what I'm talking about....

Starting Score: 537
Current Score: 725
Goal Score: 775


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