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FICO and paying off installment loan

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FICO and paying off installment loan

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!
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Re: FICO and paying off installment loan

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.

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Re: FICO and paying off installment loan


@capecodcredit 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.


Total revolving limits 649500 (568000 reporting)
FICO 8's EQ 710 TU 733 EX 717



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