Auto Loan payoff's affect on score

[raisemysc0re]

I have 2 open Auto loans.

1 of the loans is almost paid off where I only owe 1 month's payment but the maturity date of the loan is still about 20 months away.

All the extra payments went to future payments and so the interest is almost nothing.

I don't mind keeping the account open until maturity date.

The other loan still has about 3 years left, has a really low interest rate which I've been making double payments on.

My credit mix shows as exceptional on all 3 CRa reports.

I'm trying to maximize my scores for a mortgage re-fi in a couple of months.

So with this in mind...

1. Will my score immediately increase/decrease if I simply pay off the first auto loan since I would still have the second loan open?

2. Even if my scores would increase, is it still better to keep it open from an AAoA perspective?

[Anonymous]

raisemyscOre the payoff of my auto loans resulted in a 22 point drop. It hurt quite a bit (if it really mattered as I was not credit seeking). Over the years have had several installment loans and on my profile the results have been consistent.

[Anonymous]

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@raisemysc0re wrote:

I have 2 open Auto loans.

1 of the loans is almost paid off where I only owe 1 month's payment but the maturity date of the loan is still about 20 months away.

All the extra payments went to future payments and so the interest is almost nothing.

I don't mind keeping the account open until maturity date.

The other loan still has about 3 years left, has a really low interest rate which I've been making double payments on.

My credit mix shows as exceptional on all 3 CRa reports.

I'm trying to maximize my scores for a mortgage re-fi in a couple of months.

So with this in mind...

1. Will my score immediately increase/decrease if I simply pay off the first auto loan since I would still have the second loan open?

2. Even if my scores would increase, is it still better to keep it open from an AAoA perspective?

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Answer to #1:

Your score should not decrease and might increase.  That is because your "toal installment utilization" (also called total loan balance/loan ratio) will have improved. 

Here's how that factor works.  You take all your current open installment loans (only the open ones -- ignoring all closed loans).  You then add up all the amount you currently owe.  Call that CURRENT.  Then you add up the amounts that the loans were originally for.  Call that ORIGINAL.  Then you divide CURRENT by ORIGINAL and you get a percent.  (Do you see how that is a lot like the credit card utilization calculation?)  When that % is close to 100, or if you don't have any open loans at all, then you get no FICO points from this factor.  But when the % is very low (say 1-9%) then you get most or all of the points from this factor.

In the specific case you describe, compute your total installment utilization (TIU) before the payoff and then again after.  (In the Before shot you are looking at two loans, and with the after only one.)

My guess is that your TIU is going from maybe 22% to 2%, which FICO should like.

Final thought: TIU is a factor in only one or two of the three mortgage scores.  That is because the mortgage scores use older models than FICO 8.  You can still be sure that your mortgage scores won't go down, but they may not go up either.

Answer to #2:

Closing accounts does not affect AAoA.  The closed account continues to age and is counted just as much toward AAoA as if it were open.

[raisemysc0re]

@CreditGuyInDixie

Thank you for your response but I am still a little confused.

You state that paying it off should not decrease and might increase my score because my TIU would go down...

If I pay it off the loan then it will be closed and will not count towards TIU, as you also stated "(only the open ones -- ignoring all closed loans)"???

Then my TIU will be at the mercy of my second Auto Loan which has a TIU of about 70% unpaid.