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Paying down debt balance

MaybeBetter1
Member

Paying down debt balance

I want to pay down the existing debt on my car loan but don't know how much to pay down and will it in fact raise my FICO score. My score is in the good range and besides my auto loan, other debt is my mortgage. My score is lower because the age of my two accounts are only 4 years. Thanks

Message 1 of 18
17 REPLIES 17
FinStar
Moderator

Re: Paying down debt balance

Hi @MaybeBetter1 and welcome to the forums.


What is the term of the auto loan and what is the current balance?  What are your current FICO scores across the board?

Message 2 of 18
MaybeBetter1
Member

Re: Paying down debt balance

Thanks for your reply.

 

The loan is for 6 years, 2 years remaining, current balance is $7,700. Not sure what FICO scores across the board means. I see my score through my bank, currently is 731. My bank with this service also offers a What If re: credit scores. It says if I paid my installment loans off, only have the one, to zero, would increase my score by 3.

Message 3 of 18
BrutalBodyShots
Super Contributor

Re: Paying down debt balance

Paying off a loan isn't really a score-raising strategy.  Paying down overall installment loan utilization significantly can result in a score gain, but even so you'd be looking at maybe 15-20 points tops and that gain would go away if/when all loans are closed.  If you've got a mortgage in place it's probably comprising the majority of your installment loan utilization to the point that the auto loan is only a small/insignificant portion of the overall debt.  That being the case, paying off/closing the auto loan in terms of overall installment loan utilization may not change things much.  Having 1 less account with a balance could help a little (maybe a few points) but that wouldn't be enough of a reason for you to try and close it early. 

 

Do you have any revolving (CC) debt?  Depending on your balances if so, you may have some score-raising potential there.  Revolving debt can be many times more impactful to your Fico scores than installment loan debt.

Message 4 of 18
Bankrupt2019
Established Contributor

Re: Paying down debt balance

Is all you have in your credit file currently a mortgage and car loan or did I misunderstand?









Message 5 of 18
MaybeBetter1
Member

Re: Paying down debt balance

Yes, that is correct.

Message 6 of 18
thornback
Senior Contributor

Re: Paying down debt balance


@MaybeBetter1 wrote:

Yes, that is correct.


 

If the all you have reporting is an auto and mortgage loan, then your scores are lower due to a lack of revolving credit/utilization.  You need to open a credit card to fulfill that portion of your credit mix for FICO scoring. 

 

You have nothing else on your reports (no old closed accounts, incl. derogatories)? 

Personal Aphorism:
"Forget What You Feel, Remember What You Deserve"


Starting FICO 8s | 09/2017: EX 641 ✦ EQ 634 ✦ TU 647
Current FICO 8s | 11/2020: EX 780 ✦ EQ 771 ✦ TU 781
Current FICO 9s | 11/2020: EX 793 ✦ EQ 780 ✦ TU 778
2020 Goal Score | 800s


My AAoA: 3.8 years not incl. AU / 4 years incl. AU
My AoOA: 7.10 years not incl. AU / 9.10 years incl. AU
Inquiries: EX 0/6 | 1/12 ✦ EQ 1/6 | 2/12 ✦ TU 0/6 | 1/12
Report Status: Clean


Without patience, we will learn less in life. We will see less. We will feel less. We will hear less. Ironically, rush and more usually mean less.
Message 7 of 18
MaybeBetter1
Member

Re: Paying down debt balance

Thanks for your reply.

No, I have nothing else on my reports (no old closed accounts, incl. derogatories).

Which or what kind of credit card would be best to fulfill that portion of my credit mix for FICO scoring. 

Message 8 of 18
thornback
Senior Contributor

Re: Paying down debt balance


@MaybeBetter1 wrote:

Thanks for your reply.

No, I have nothing else on my reports (no old closed accounts, incl. derogatories).

Which or what kind of credit card would be best to fulfill that portion of my credit mix for FICO scoring. 


Any type of revolving credit card will do. You just need to determine whether you're interested in cash back rewards, travel rewards, or a simple no-frills low apr card.  Also consider whether or not youre willing to pay an annual fee..   sometimes, with rewards cards,, the annual fee is worth it if your spend will be high enough to offset the cost.  If you are unsure given your lack of credit experience, then stick with no-annual fee rewards cards for now til you come to better understand your spend habits and rewards benefits.   Cashback is certainly the more straightforward rewards system. 

 

Since you have a thin file with no revolving history, it's best to look into lenders that are known to generally be thin-file friendly such as Amex or Discover.  You can use their pre-qualification tools and, if pre-qualified, apply.  You can also check with your current banking institution to see what they offer since you've already developed a relationship.

Personal Aphorism:
"Forget What You Feel, Remember What You Deserve"


Starting FICO 8s | 09/2017: EX 641 ✦ EQ 634 ✦ TU 647
Current FICO 8s | 11/2020: EX 780 ✦ EQ 771 ✦ TU 781
Current FICO 9s | 11/2020: EX 793 ✦ EQ 780 ✦ TU 778
2020 Goal Score | 800s


My AAoA: 3.8 years not incl. AU / 4 years incl. AU
My AoOA: 7.10 years not incl. AU / 9.10 years incl. AU
Inquiries: EX 0/6 | 1/12 ✦ EQ 1/6 | 2/12 ✦ TU 0/6 | 1/12
Report Status: Clean


Without patience, we will learn less in life. We will see less. We will feel less. We will hear less. Ironically, rush and more usually mean less.
Message 9 of 18
HeavenOhio
Community Leader
Senior Contributor

Re: Paying down debt balance

Welcome, @MaybeBetter1. Smiley Happy

 

It's unusual to see a file like yours. We wouldn't have a lot of data as far as how credit card lenders will respond. But I would think that you should be eligible for some good cards and that you should be able to steer clear of secured cards and lousy unsecured cards.

 

As mentioned, check the pre-qual tools for AMEX and Discover. Those tools are pretty reliable. In particular, I'd bet on Discover offering you something good.

 

Additionally, check Chase, which is also reliable. The thing about Chase is that they're not known for issuing cards when one has no cards or when one's oldest card is less than a year old. But as we've said, we don't really have data points for files like yours.

 

I'm not sure how many cards you'd be interested in acquiring, but don't rush. You want your first card to be good, and you don't want your second card to be a step backward from that.

 

From a scoring standpoint, note that the addition of a credit card will reset the age of your youngest revolver to zero. That can be a significant hit. But with one's first card, the mere appearance of the card will likely offset that penalty and result in a net gain. Card #2 will also likely offset the new card penalty. Card #3 could go either way.

 

But you want to think in the long term. Most say that once new account penalties and inquiries age, three cards will optimize scoring. Some say five cards is better. So there'd be some pain for gain, so to speak.

 

If all you want is one card, that's fine. My suggestion would be to work your way up to three or so at a pace that makes both you and potential lenders feel confortable. There's no need to rush.

Message 10 of 18
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