Any tips on how to minimize damage to one's FICO score when getting a car loan?
In 10 days or so I'm probably going to buy a new car & put in for auto loan. I know it will play havoc with my scores, short term, but is there any way to contain the extent of the devastation?
@Anonymous wrote:
Low Down Payment if your credir warrants it followed by a high initial payment the first month.
We have a 6 year car loan, paid a 1/3 month one after putting a 1/3 down. If we did it again we would have held off and paid 2/3 of the loan off the first month.
As with all credit lines getting it under 80% then 50% will help return the points.
Cool. Thanks. Will all banks report that it's been paid down?
@Anonymous wrote:It's the same general principle that applies to installment loans: paying down the total debt on all open installment loans compared with the total amount they were collectively taken out for.
If a person already has huge installment loan(s) for which little has been paid off (e.g. a mortgage, student loans, etc.) then playing around with the amount owed on a new much smaller loan will thus have little effect. If the new loan will be the only open loan you have, however, then the new loan is your entire open installment debt. But either way, the key to answering the question is the same general principle.
As to what all lenders will do, there isn't a single answer. An important part of Alan's strategy would be to reach out to a prospective lender before signing any paperwork and asking them how they handle a borrower making a big early payment (e.g. half of the loan, whatever). Ideally, you want to hear three things:
(a) That they let you do that
(b) That the big extra payment will be immediately applied toward the principal
(c) That it will cause the next payment due to be extended out many months in time (or equivalently, the big overpayment won't cause the loan to pay off prematurely).
(B) is the whole point of the stratgey -- so that you quickly create a loan reporting with an amount owed at (say) < 50% of the original amount (or whatever). (C) is almost as important -- you want the loan to stay open for the original length of the term. If the additional payment shortens the loan term by a huge amount, then you will have a small window of benefit for the period when you have an open loan that is largely paid off.
Thanks CGID, much appreciated.
@pipeguy wrote:Frankly installment loans, especially auto loans have very little effect on scoring - ie slight bump UP in your score due to a strong credit mix and basically no loss on scores for the increased debt load. I added a new car in March of 2013 (loan) scores went up, added a new "used car" 2013 model in December 2014, no change in scores - in January 2016 I paid off the 2013 car loan, scores went down 29 points even though I still had a mortgage and another car loan. Later in February I replaced the paid off car with a new 2016 - with a new loan, scores didn't change at all (note that my scores had recovered already from the January hit). Making bigger payments on an installment loan makes very little if any difference, the "utility factor" is not the same as revolving credit card accounts.
High interest rate furniture or debt consolidation loans might cost you points as their risk factor is a bit different, but my experience is that most "standard" credit profiles do not take much, if any of a real hit for getting a car installment loan. As far as sub-prime reports and loans, I can't say.
Edit/ Add: If total loan utility on a car installment was a real factor ANY refi for a better rate would result in a credit score hit because the NEW loan would have a 100% utility factor - I've never once seen on this forum anyone enjoying their 10.5% loan going to 2.49% and then watching their credit score drop 20+ points - doesn't happen on refi's even when you change lenders.
Pipeguy 
This is incorrect for FICO 08 and 98 scoring. We have volumes of data on this and yes refi's do take hits unless your aggregate was already in a nasty place anyway.
To wit, if I went and just got a new car, it would do absolutely nothing to my credit score as I have a 240k/250k mortage outstanding anyway; however, in SJ's case, he's going to lose all the points he just recently gained from the Alliant reindeer games that just worked for him. 50% isn't a breakpoint, but the small downpayment, lump sum strategy would be the way to go to speed the process generally and get the longest term they have on offer SJ and just pre-pay as much as possible to get the points back quickly (assuming the lender pushes payments ahead which most do, though DCU for example does not).
And yes, it has happened quite often if you go from a call it 60% installment utilization to 100% on a refi: student loans, cars, and even a mortgage previously. Where you don't see it as much is usually we tell people to refi after 6 months, so going from 95% to 100%, ain't no big thing which may be what you're alluding to, but it's just all standard installment utilization metrics and those are well characterized for FICO 8.
