@TilltedBrim wrote:I just received a new auto loan and haven't had one for over 10 years. How long should I have this account in order to maximize my score? If i pay it off in one year with no lates will it be just as effective as stretching it out and paying it off in five?
From a pure FICO perspective, no. The longer a tradeline is established for, in general, the better it is. We don't know what the breakpoints are for certain, but we're pretty certain anecdotally there's one at six months, and another at a year, and then somewhere out from there. Maybe 3 years for a long-term tradelines, hard to say.
Financially though, usually it's better to just pay and be done with it; however, some auto loans allow you to pay more than the extra and push out the next due date correspondingly. Not all lenders do this (double up on your first payment just to see if it changes your next due date from the following month to the next one after that) but if they do, you can pay off most of your loan and still have it open for 3.5 or so years for hardly any interest.
End of the day, we're talking about coloring in the margins FICO wise. I don't recommend any tradeline be closed earlier than the six month mark as a general rule, and probably a year is better; however, if it saves you non-trivial amounts of cash in interest, pay it off. When we're talking possibly thousands of dollars, generally finances > FICO.
@tooleman694 wrote:I have 2 paid off auto loans on my credit.. once each was paid off I saw no difference in my score..
One paid off after 3 years and another after a year..
No one's arguing that point, that's well established; however, what's less known is what affect seasoning of tradelines has on FICO scoring. That's really what the question boils down to, is a three year tradeline better than a six month, or one year one. I'm pretty confident that it is; however, mathematically we don't know and FICO isn't going to tell us that; however, they did give us that example post of how FICO *could* work, which probably wasn't complete disinformation, and it did have a grading based on each tradeline.
Whether it's a significant factor or not I don't know; however, short term loans as a general rule tend to suggest borrower instability, and while the converse isn't necessarily true, we do know that FICO absolutely grades total AAoA, and that they look at individual credit lines with regards to how close to fully extended you are, so it's not unreasonable to suggest that individual tradelines are also at least partly scored on their individual ages, rather than a simple aggregate under AAoA.
I've always been a little suspicious of AAoA as a true predictor of anything anyway given the way they implemented it, 10 accounts opened for one months reporting (and then closed) 9 years ago shouldn't be a huge sign that a borrower is stable, and yet for AAoA it counts as a a full 9 years x 10 tradelines. There's got to be something which makes up for that otherwise a non-trivial amount of the algorithm is easily questionable, and some sort of individual tradeline measurement and scoring would certainly fit the bill for ameliorating that.
Certainly the pop that people receive for their accounts ticking over the six month mark appears to be pretty well established, but we don't know if there's break points out beyond that. Six months or bust strikes me about as silly as the 1 month ludicrous example I posited earlier; however, there's probably diminishing returns on any individual tradeline and six months is probably the most important one as a result.
My theory anyway.
Thank you all for your replies.... 