Pay Off Current Auto Loan Before Applying For New One?

[Jazee]

If My FICO is mid to high 600's primarily due to few of accounts (I have one credit card and one auto loan).  Would it be more detrimental to paying off the current Auto Loan and letting it close out on my credit report before I apply for a new auto loan?  Or would it be beneficial?

[Anonymous]

Detrimental.  What would be very helpful is paying the balance on the loan down to 8% of the original loan amount a few months before you buy your new car.  Just be sure that the balance is high enough that you can be confident that the loan will not yet be paid off on the day before you buy the car. 

[Anonymous]

Detrimental when it comes to score since you would no longer have an open installment loan reporting. Also, you can have a score in the 760s and beyond with only one account. So I don't think your low score is just due to having two accounts like you say. 

[Anonymous]

What's the utilization on your credit card? If that's above 30% bring it down before applying for an auto loan, and bring the auto loan below 9% for an optimal score. 

[Jazee]

I didn't say "only" due to too few accounts.  I've checked the report and it's due t

To few of open accounts (2)

High utilization (90% - which I just paid down to 25%)

Age of accounts (I totally forgot doing a refi on my auto loan 18 months ago was going to essentially "reset" the age on the account)

Kicking myself that I paid off and closed a couple old credit card account. But it was part of a divorce agreement.

[Anonymous]

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@Jazee wrote:

I didn't say "only" due to too few accounts.  I've checked the report and it's due t

To few of open accounts (2)

High utilization (90% - which I just paid down to 25%)

Age of accounts (I totally forgot doing a refi on my auto loan 18 months ago was going to essentially "reset" the age on the account)

Kicking myself that I paid off and closed a couple old credit card account. But it was part of a divorce agreement.

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Your best bet is to wait for credit card company to report your balance. You can check a credit website such as CreditKarma to see the date the balance was last reported. I'd wait a few days past that date to apply for a new auto loan. If you have the money available and the card will be reported in a week or two, then go ahead and pay it down below 9% if possible. 

[Anonymous]

OP, do you have any late payments on either of your two accounts... the CC or the auto loan? 

If your score is in the 600's and utilization is your only issue at ~90%, understand that taking it down to below 8.9% reported will easily take your scores into the optimal range; You'll likely land around 750.  That's a night and day difference from where you're at now and this should be your #1 focus before applying for another loan.

As for your current loan, pay it down but not off.  The best look you can possibly have both from a manual review on your next auto loan and from the eyes of FICO for your score would be to have a small balance left on your current auto loan, say, 2-3 payments at the time you app.

[Jazee]

The credit card is $4K and the auto loan balance is $6K or about 75% of the loan amount (refi was not too long ago).  I've got $4K to pay off.  I think it was my Experian report that should my utilization percentage based soley on the revolving credit account (the CC) so I am thinking it would be better to take the CC down to 8% instead of the auto loan down to 33%.  ??

[Anonymous]

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@Anonymous wrote:

OP, do you have any late payments on either of your two accounts... the CC or the auto loan? 

If your score is in the 600's and utilization is your only issue at ~90%, understand that taking it down to below 8.9% reported will easily take your scores into the optimal range; You'll likely land around 750.  That's a night and day difference from where you're at now and this should be your #1 focus before applying for another loan.

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Our OP also has a collection on his report, which he mentioned on only one of his other threads:

https://ficoforums.myfico.com/t5/General-Credit-Topics/Expediting-Update-of-FICO-Score/td-p/5324803

If he's certain of the full dollar amount of the collection (later in the thread he indicated it is $85), then it should be being ignored by FICO 8.  FICO 9 will ignore it once it is marked as paid.  All other model families (FICO 04 and FICO 98) will count it against him as long as it appears on the report. 

OP, as you get better at understanding credit you'll also learn how to put all relevant info at the top of a thread (derogs, CC utilization, etc.) rather than the other folks having to discover it via a lot of questions.  We realize that's hard to do when you are completely new to understanding this stuff, but it is a goal to work toward.

[Anonymous]

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@Jazee wrote:

The credit card is $4K and the auto loan balance is $6K or about 75% of the loan amount (refi was not too long ago).  I've got $4K to pay off.  I think it was my Experian report that should my utilization percentage based soley on the revolving credit account (the CC) so I am thinking it would be better to take the CC down to 8% instead of the auto loan down to 33%.  ??

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Good insight!  That's absolutely right.

Actually the best choice is to bring your CC balance down to a small number (e.g. $10-20) and let that balance report to the bureaus.  You'll want at least one card to always report a small positive balance.

If you don't have quite enough money to bring the balance down to $10, then pay it down to under 8%.