Pay off or keep auto loan?

[Anonymous]

So here's the situation...

I owe $6,000 on my auto loan, I want to pay it off but I'm also in the market for a new car.

everyone I've spoke too is saying if I pay the car off my credit score will drop ALOT. I've come a long way, two years ago my credit score was 520 and I'm now at a 780 so I really want to avoid damaging my credit. 

so is it true? Will paying my auto loan off hurt my score?

I'm thinking I buy a new car and immediately pay off my old auto loan, but wanted to get some educated opinions so I'm here, thoughts? Advice? Tips?

[Horseshoez]

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@Anonymous wrote:

So here's the situation...

I owe $6,000 on my auto loan, I want to pay it off but I'm also in the market for a new car.

everyone I've spoke too is saying if I pay the car off my credit score will drop ALOT. I've come a long way, two years ago my credit score was 520 and I'm now at a 780 so I really want to avoid damaging my credit. 

so is it true? Will paying my auto loan off hurt my score?

I'm thinking I buy a new car and immediately pay off my old auto loan, but wanted to get some educated opinions so I'm here, thoughts? Advice? Tips?

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I don't know if paying off the loan will drop your score "a lot", but it will most likely drop some; my wife paid off her car last summer and saw about a 15 point drop with no other changes.  That said, if you pay it off and then jump right into a new car and new loan, the impact should be minimal.

[SouthJamaica]

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@Anonymous wrote:

So here's the situation...

I owe $6,000 on my auto loan, I want to pay it off but I'm also in the market for a new car.

everyone I've spoke too is saying if I pay the car off my credit score will drop ALOT. I've come a long way, two years ago my credit score was 520 and I'm now at a 780 so I really want to avoid damaging my credit. 

so is it true? Will paying my auto loan off hurt my score?

I'm thinking I buy a new car and immediately pay off my old auto loan, but wanted to get some educated opinions so I'm here, thoughts? Advice? Tips?

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It probably depends on where you are with the present loan.  If (a) it's your only open loan and (b) your $6000 balance is > 10% of the original loan amount, you're  not getting a lot of bonus points for having it.  So paying it off won't cost you so much in points.

[Anonymous]

It's my only loan at the moment, I have no other debts. I have a CC but the limit is only $1,500 with a $0 balance on it

[SouthJamaica]

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@Anonymous wrote:

It's my only loan at the moment, I have no other debts. I have a CC but the limit is only $1,500 with a $0 balance on it

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You didn't answer the other half of the question. Is the original loan amount less than 60k? If so, you're not getting too many points for the loan right now, so you don't have that many points to lose from paying it off.

As to your credit card, try experimenting.  See whether you get more points from it reporting a zero balance or from it reporting a small balance. Then report back and let us know which works better for your score.  Few of us have experience with having only one credit card.

[CH-7-Mission-Accomplished]

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@Anonymous wrote:

So here's the situation...

I owe $6,000 on my auto loan, I want to pay it off but I'm also in the market for a new car.

everyone I've spoke too is saying if I pay the car off my credit score will drop ALOT. I've come a long way, two years ago my credit score was 520 and I'm now at a 780 so I really want to avoid damaging my credit. 

so is it true? Will paying my auto loan off hurt my score?

I'm thinking I buy a new car and immediately pay off my old auto loan, but wanted to get some educated opinions so I'm here, thoughts? Advice? Tips?

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DO NOT pay it off.   You can pay it down if you want but paying it off will likely tank your score by 25 points.    

To put it another way, you will NOT gain any points by paying it off.   Whether the score hit is 15 points or 30 points, it is a HIT.   Don't do it until you have your new car and let the new lender pay off the old loan.   You will still likely get a score hit, but you will have your new car.

[Anonymous]

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@CH-7-Mission-Accomplished wrote:

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DO NOT pay it off.   You can pay it down if you want but paying it off will likely tank your score by 25 points.    

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The OP hasn't given us enough information to make that call.  If he owes $6k on the loan, the original balance would have to be >~$60k for him to be at under 10% utilization wise in order to be receiving the (say) 25 point bonus.  If it's $6k on a $30k loan or something for example, he's not realizing the 25 point gain yet, so it isn't there to lose if he pays off the loan.

[CH-7-Mission-Accomplished]

Disagree.   Virtually everybody sees a drop in scores by virtue of not having an open installment loan on their report.  If his scores are fine with that old auto loan in place don't mess with it.   Even people who never got down to that under 8% super bonus will lose points for not having an open installment loan.   When I opened my first share secured and owed 100% I gained nearly 20 points.   Leave well enough alone.  The dealer will pay off the old loan at trade in after he has been approved for the new loan.  

[Anonymous]

All good if you disagree.  While it may be profile-dependent to some degree, the majority of people see the most significant score gains related to a solo installment loan when it crosses 10% utilization and not prior. 

The gains you saw from the opening of your first loan were likely due to the satisfying/improving of your credit mix and that sector of the Fico pie and not due to the Amounts Owed slice.  OP would not be changing his credit mix in this situation, so any gains/losses would be attributed completely to Amounts Owed... which in his example without crossing the 10% threshold would not matter much in terms of Fico scoring.