Re: FICO and paying off installment loan

Anonymous · ‎02-15-2019

So we’re trying to buy a house. Our FICO scores are where they need to be. The problem is we have an auto loan that’s $340 per month. We also have a student loan of $40 per month. We have a down payment but could use the down payment money to pay off the auto loan and do a no money down mortgage. Or keep it to use as a down payment and get the auto loan out of husband’s name. We were pre approved but need to add about $30k to it to have options.

Would paying off the truck loan or getting it out of his name hurt his score? There would still be a student loan for an installment loan. All credit cards are paid off except one which we put $40 a month on and pay down. Thanks!

Anonymous · ‎02-15-2019

Paying off a loan often causes your total installment utilization to go up, which can hurt your score.

TIU is calculated by first looking at all your open loans -- ignore closed loans in this calculation. Add up all the balances currently owed. Call that total CURRENT. Then add up the original loan amounts. Call that ORIGINAL.

TIU = Current / Original (expressed as a %).

Suppose Bob has a student loan and a truck. The SL has a balance of $2800 and an original amount of $3000. The truck has a balance of $700 and an original amount of $47,000. He then pays off the truck.

His TIU before the payoff was (700 + 2800) / (47000 + 3000) = 7%. That is under 8.99% which is very good.

His TIU after the payoff was 2800 / 3000 = 93.3%. That is over 88.99% which is very bad.

One of the three mortgage scores is affected by TIU. That score would go down maybe 20-30 points in the example above. If the TIU didn't change much the score would go down much less.

SouthJamaica · ‎02-15-2019

@Anonymous wrote:
So we’re trying to buy a house. Our FICO scores are where they need to be. The problem is we have an auto loan that’s $340 per month. We also have a student loan of $40 per month. We have a down payment but could use the down payment money to pay off the auto loan and do a no money down mortgage. Or keep it to use as a down payment and get the auto loan out of husband’s name. We were pre approved but need to add about $30k to it to have options.

Would paying off the truck loan or getting it out of his name hurt his score? There would still be a student loan for an installment loan. All credit cards are paid off except one which we put $40 a month on and pay down. Thanks!

Oddly, the mortgage scores do not react much to installment utilization. FICO 8 reacts strongly, but that's not a mortgage score. When my installment utilization crossed important FICO 8 breakpoints, my EX & EQ mortgage scores didn't budge, and my TU mortgage score moved slightly. Others have reported the EX score moving slightly, with TU & EX not budging.

In any event, I would need to know the balances and the original loan amounts on the installment loans, to advise you on how to play it to get a possible minor boost in your mortgage scores.