Paid Off My Auto Loan And Score is DOWN 19 points. . .

[Anonymous]

which sucks because I worked so hard to get my score up but I would rather be without the high interest debt accumulating every month :-(

Message Edited by dooodooo on 12-10-2007 03:55 PM

[Anonymous]

Same thang just happened to me. Only about 7pts though.

[ariesdreamer]

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dooodooo wrote:
which sucks because I worked so hard to get my score up but I would rather be without the high interest debt accumulating every month :-(

Message Edited by dooodooo on 12-10-2007 03:55 PM

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The exact thing happened to me when I paid off my auto loan last year. Maybe it was the account being closed and not opened anymore...? Anyhow, at least that car loan is paid off. It feels super good, doesn't it?!

[Anonymous]

Hello, and welcome.

This is a common occurance.....paying of a car loan and the score decreases. I'm in the same boat.

I paid off 2 car loans last August and my scores plunged 35 points.

The reason that it occurs is that you are decreasing your credit mix(various types of credit instruments(revolving, installment, mortgage, HELOC, etc)

Your credit mix accounts for 10% of your FICO scores. Under "Credit Education" look at the dreaded pie chart of death, as hauling puts it. It will explain a lot.

http://www.myfico.com/images/CreditEducation/ce_scorebreakdown.png

[Boswd]

That drives me crazy,  no pun intented.

Your credit score is supposed to be a measure of your credit worthiness.   You take out a loan, which is a line of credit,   you pay it back, showing good credit worthiness.   Showing you can take on a line of credit and are dependable.       If anything it show go up.

But NOOOOOOOOOOOOO  let's punish them because FICO lkes everyone to be in debt to the creditor's.   Yeah I said it,  they are in shrill with the lending institutions.  

Think about it,  what are some of the common advice tips they give you to improve you score?   Open new credit accounts or open up some more installment accounts.    INSANE ,  I's tell ya.

but anywho,  to blankety blank with FICO.   You've paid off that car loan, and now the car is your's and no more payments and that debt is gone and you can use that money towards other things..    THAT'S A GREAT FEELING despite what  FICO AND  Credit Bur's.  think 

Good Job

[Anonymous]

Totally agree Boswd! It IS a good feeling to have clear title to a car.

When I paid off my car loans, I considered that to be giving myself a $600 per month raise. And the FICO scores shrink in importance.....until I apply for a cc! LOL

[SanFranMatt]

I wonder if it's best to just pay off everything, except for the final $100?  The interest wouldn't be signifcant (even at 12%, that's only a buck a month) and it'll keep it on the credit report.

[Anonymous]

If it were me, I'd keep the loan in place, consistently making those payments, unless you just want to rid yourself of the payment. Right now, it's only helping your score.

A judgment call only you can make.

[fishbjc]

Good to know and it STINKS!  I planned on paying mine off by middle of '07...but I may pay it down now and keep a little bit open while my score increases.  Another reason why this forum is so helpful.

[Boswd]

As Slyvia has said it is a judgment call on your part on whether or not you want to pay off your auto loan or not.

IMHO  I feel the less debt and obligations to creditor's trump the FICO score everytime.  For one, you will now have more money in your pocket that you haven't had for years,  that you can use what ever way like ( start a vacation fund, increase your savings, get caught up on other debt etc..)

As it does seem when paying off an installment loan it does affect your score.   BUT it also is a POSTIVE, under a manual review from other lenders.   It is really important having a PAID installment loan.  especially if paid on time in your credit history.  This shows the lender you can take out a loan and pay them back with no trouble.

You also have to remember that your credit score is at it's most important when looking for a mortgage, auto loan, or other types of installment loans.   Yes, I know that your credit score is looked at in other different situations but the most important times are when looking for an installment loan or some form,  but lets be honest, getting a high enough score to qualify for the latest Amex card shouldn't really be on your higest priority list,    And with that your past paid off loans are going to be viewed very positively.

So unless you are looking to get a line of credit,  the temporary hit you will take is rather meaningless.

So I say if you can pay off your auto loan early and there are no early payment penelties than I say go ahead and pay it off and enjoy the savings you are about to receive,  especially the future savings your are going to get by not paying interest on it.