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Paying off car/impact on credit score

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Anonymous
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Paying off car/impact on credit score

We will be closing on a mortgage loan in May and obviously want our credit scores to be as high as possible. I have about $1300 left on my car loan and was considering paying it off before May, but am wondering if paying off this loan/the account closing will have a negative affect on our credit score? The only other types of open accounts we will have after the car is paid off are credit card accounts (4) since our existing home has already been sold and paid off.

Message 1 of 10
9 REPLIES 9
Kree
Established Contributor

Re: Paying off car/impact on credit score

Yes, if you do not have any other installment loans, such as a mortgage or auto loan, then you will most likely lose points if your auto loan closes.

 

EDIT:   Always trust ABCD over me.

Message 2 of 10
Anonymous
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Re: Paying off car/impact on credit score

Your score should will likely fall 20-40 points if you have no auto loan reporting but only on FICO 8 and newer scores.

Mortgage scores typically use older models and you may only see a score drop on one of the bureaus but you will see a score drop.

Does the loan hurt your DTI?
Message 3 of 10
Anonymous
Not applicable

Re: Paying off car/impact on credit score

Thanks for the replies! No, the car loan does not hurt our DTI. Currently our mid Fico 8 scores are in the upper 700's. Sounds like the safe thing to do is keep it open. I currenlty pay extra on it every month so will just stop doing that so it stays open till after we close on our home loan.

Message 4 of 10
SouthJamaica
Mega Contributor

Re: Paying off car/impact on credit score


@Anonymouswrote:

Thanks for the replies! No, the car loan does not hurt our DTI. Currently our mid Fico 8 scores are in the upper 700's. Sounds like the safe thing to do is keep it open. I currenlty pay extra on it every month so will just stop doing that so it stays open till after we close on our home loan.


Yes, no sudden moves at a time like this. But if there are minimum payments due be sure to make those.


Total revolving limits 657200 (536700 reporting) FICO 8: EQ 706 TU 710 EX 708

Message 5 of 10
Anonymous
Not applicable

Re: Paying off car/impact on credit score

Can you confirm for us that the original loan amount was $15,000 or more?  Some car loans are for less if the purchase was for a used car.  If the original loan amount is at least 15k, then you are fine.  If not, I'd advise paying the balance down to < 8.99% of the original loan amount, as long as you can see that the loan will remain open through June.

 

PS.  It sounds like you are looking for any advice that might raise your scores.  If so, do you have exactly one of your credit cards reporting a small positive balance with the remaining cards reporting $0?

Message 6 of 10
Anonymous
Not applicable

Re: Paying off car/impact on credit score

The original balance of the auto loan was $16,500 and we've been paying on it for 3 years. I pay extra on it, so I'll simply just adjust that to the 'monthly amount due' and it'll remain open through June.

We're mainly looking for ways to make sure our score doesn't go down. We had some surprise negative remarks on our credit report (long story) that my LO says can be overlooked since it's just 1 account and our overall credit scores/health are good.

We pay off our credit cards in full every month, but typically after the 'statement date' so they do show up as having a balance when the credit report is pulled.

Message 7 of 10
Anonymous
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Re: Paying off car/impact on credit score

Your mortgage scores are being hurt by the fact that most or all of your cards are reporting a positive balance.  The mortgage models do not like that.  They like it when most of your cards report $0 with the remaining card reporting a small positive balance.

 

Additionally, it is likely that your CC utilization is hurting your score.  (That's a different factor from number of cards reporting a positive balance.)  The fact that you are paying your cards in full after the statement prints doesn't tell us anything about your reported utilization.  It could be 40, 50, 60, or even 70%. 

 

I would get your CC balances reporting optimally, confirm that the new balances are on all three reports (you can do this for free), and then pull your mortgage scores.

Message 8 of 10
Anonymous
Not applicable

Re: Paying off car/impact on credit score

Found for my credit file the payoff on the auto loan dropped my Fico Score by 22 points. As other posters have mentioned there are variations and some effect of YMMV.
Message 9 of 10
Anonymous
Not applicable

Re: Paying off car/impact on credit score

I'm not sure about my FICO but my Vantage score dropped 12 points paying off the car loan, even with a mortgage that is 20 years strong.  I didn't need to worry about it now, but do wonder how long for a bounce back.....

Message 10 of 10
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