Mortgage Scores/ Paying off car loans so confused, please help!

[Anonymous]

So from what I getting from the forums is that paying off a car is damaging to your credit report?  We just sold a car because the payment was over $500 a month.  I also paid off my Discover Card, trying to get to the magic 41% debt/income ratio to buy a house in the price point we want to be in.  I will be checking into a Section 184 loan and it will be in my name only (live in Oklahoma).  I still need to pay off my US Bank Card which will be happening this week hopefully.  Would I be better off not paying it off completely?  Also, my Jeep payment of $568 is in both our names so I need to get that in my husband's name since he is the one that makes the payment right?  But what is that going to do to my credit score?

My Scores are below

• Equifax Beacon® 5.0 689
• Experian®/Fair Isaac Risk Model V2SM 671
• TransUnion FICO® Risk Score, Classic 04 752

• Equifax Fico 8 785 
• Experian Fico 8 774
• TransUnion FICO 8 758 

[StartingOver10]

Paying off your high dollar installment loan is not damaging to your credit report. Paying off debt on time is never damaging.

If you have no other installment loans you may temporarily lose a few points, but then regain them.

You have other installment loans. When your huband refinances the jointly held car loan into his name alone will this action remove your only active installment loan? If so, the hit to your FICO score should be minimal.

Paying down all of your revolving balances to zero except one where you have a reported balance of 1% to 9% will optimize your score. Right now your mid score is 671 which should be high enough to qualify for the mortgage you are seeking.

The bigger question is how did you calculate the DTI? Are you using the PITI + mortgage insurance (if applicable) of the new home you are purchasing?

[Anonymous]

I used the mortgage calculator here on myfico and I believe it includes the PITI + mortgage insurance.  Once the car loan is out of my name, my dti will allow a loan of $70,000 more than I want to spend at my age if I am figuring right.  When I use the other debt field should I include all of the monthly utility bills and "after taxes" amounts from my paycheck?  Should I include any of the "before taxes" that are taken out of my check?  Also, I assume my life insurance premiums that are not through my employer are considered "other debt" correct?

[StartingOver10]

The lender will use your gross income (before taxes and other deductions) if you are a W-2 type employee. If you are 1099 or self employed they use your income after business expenses.

The lender will not use utility bills or life insurance debt payments. They will use the payments showing on your credit report. If you have a debt payment not showing on your credit, then disclose it to the lender. This would be a loan or other installment or revolving balance that isn't reporting on your credit (if any).

[Lemmus]

...its the lack of current installment debt that "may" cost you a few points ...the mortgage scoring model appears to weigh installment debt more highly than the cc scoring model ...that said, there are more than enough 800 club members in these forums with zero installment debt to make that concern a minor one ...you may lose a few points one month and gain them back, plus more, the next ...do what is best for your and your family's personal financial situation ...then and only then, look at the impact of the choices you have left and their impact on your credit scores ...trust me, there is life beyond myFico scores ...hth

[frugalQ]

This is not always true. My DH was at 696 mid score before we paid off his truck...EX was his mid. His EX dropped to under 680 initially after the account reported as close. We were only able to get his mid score up to 687 by the time we closed on the house.....and his mid switched from EX to EQ.

He still has a mortgage and student loan as open installments.

I don't know if EX dings more harshly for closed accounts because it uses an earlier version than the other two (EX is the 98 version), but paying off his car definitely hurt us.

It's s ymmv situation.

[Lemmus]

...yes ...but a 16 pt drop and recovery in 90 days is a pretty normal range for score movements ...its not a drastic drop in scores that is going to prevent, or even likely affect, the mortgage process unless you were borderline ...if a financial transaction, other than new debt, is in your best financial interests you should normally proceed regardless of small transitory effects on your credit scores ...imnsho, ymmv of course 

[frugalQ]

he never got back to his original mid score...this was EX only.  this is why EQ ended up being his mid score.  EQ and TU did not have a material impact.

When you are purchasing a house 16 points is major and 90 days is a lifetime.  We paid off the car in october/November, and when we had our credit reports pulled at the end of December, we were still outside of the 680 range for our specific mortgage product. 

I completely agree with you on the whole doing what's best thing.  That was our thinking.  Paying off his car drastically reduced our DTI and made so much more financial sense for us. We decided to pay it off and let the chips fall....we'd deal with the fallout if/when it came up.