Paying installment ALMOST off

[Anonymous]

Hi all, 

 I have read much about FICO dropping some once you PIF auto loan. I am trying to raise my FICO. for a home purchase i expect in about 4 months.  I have 2 auto loans.  On one i owe 7K and the other i owe 15K. I was thinking about paying  like 90% of the balance off. 

Will doing this raise my FICO? Will it raise it as much as if i did the same thing with my credit cards?

thanks!

[jamie123]

Paying down your credit cards so that 1 card reports less than 10% of its credit line and all your other cards report $0 will definitely help your score a lot. You need the one card to report a small balance to get the best scoring benefit. If all your cards report $0 your scores will actually be a bit lower.

Paying down the balances on the auto loans will have little effect on your scores. This is the tough part...Some lenders will ignore your auto loan payment in your DTI calculation if there aren't many months left on the term. It varies by lender. When the lenders were really tough on approving loans a few years ago, if you only had 1 month left on the term, it was calculated into the DTI. You would probably benefit by paying off 1 of the auto loans and paying the other one down to about 6 months left on the term if possible. When a lender calculates your DTI they will subtract your auto loan payment from the monthly mortgage payment that you would otherwise qualify for.

So you want one active auto loan to help your scores, but not two auto loans, because that has a detrimental effect on your DTI calculation.

[Anonymous]

Thanks for the great advice. I think I should have put more information perhaps, so here goes. I am wanting to get my FICO up for new house loan, 740 is ideal but unlikely. I have great job and pay, for about 7 years now. I have absolutely NO NEGATIVE items like late payments, collections etc… on any reports.

FICO08. Got from myfico

TU 666

EX   678

EQ   684

FICO 04? Got from Equifax

TU 649

EX 640

EQ 656

                      1) Credit Cards                                                                                                                                                                               

                                             Min Due   Amount Owed     Limit                          

CC1:                                            165        10000                12000                           

CC2                                            54        542.25                 700

CC3                                            57          1496                    1500

C4                                                0              0                          800

CC5                                             218     9772                    10,000

CC6                                              65        2998                    3200

CC7                                                49       4953                    5000

CC8                                             25        797                      1000

                        2)Mortgage

       -original loan amount: 100000     owed:92000 

       -this is under contract and will be sold/paid off at end of January.

                        3) Car Loan

       -Auto Note 1: Original Loan Amt.       9,700                 Amt. Owed   7,000

       -Auto Note 2: Original Loan Amt         26,000             Amt. Owed   15000

I only need to get auto loans under 10 payments left for them not to be counted on DTI for mortgage loan.

So when I get $ from sale of house, I plant to pay off about 12K on one, and 5K on the other.

                          4)Student Loans:

           -Total Current Amount: 107,000    Not sure what original amount was.

           -Sigh……..nothing much I can do here. Needed these for various graduate degrees for job.

I have lots of other various credit lines that were closed in past many years. All were up to date, paid off and positively closed. I do have 2 credit cards that are recent within past 12 months, so that likely hurt a little bit my FICO. Have about 4 or 5 inquiries in past 2 years.

The only thing I see that is really an issue is the debt utilization rate? I am sure the large student loan doesn’t help, but I am unsure how much it is hurting me. Not much I can do about it though.

My strategy:

1. Pay off now 3 credit cards with lower balances.$542, $1496, and $797. Not really sure if I should pay them down to zero or leave 3 or 4% on them????
2. House will be paid off end of the month.
3. First of Feb. will pay most of auto loans off. From reading forums, it seems it is best to leave the lines open with some $ on them for best FICO?
4. First Feb. pay of 2998 credit card.

That is about all I can do and still have a little money for a down payment on home and closing costs.

I would appreciate any feedback if I am mistaken on something or if someone has a better strategy to get FICO higher faster. THANKS in advance.

[jamie123]

---

@Anonymous wrote:

Thanks for the great advice. I think I should have put more information perhaps, so here goes. I am wanting to get my FICO up for new house loan, 740 is ideal but unlikely. I have great job and pay, for about 7 years now. I have absolutely NO NEGATIVE items like late payments, collections etc… on any reports.

FICO08. Got from myfico

TU 666

EX   678

EQ   684

FICO 04? Got from Equifax

TU 649

EX 640

EQ 656

                      1) Credit Cards                                                                                                                                                                               

                                             Min Due   Amount Owed     Limit                          

CC1:                                            165        10000                12000                           

CC2                                            54        542.25                 700

CC3                                            57          1496                    1500

C4                                                0              0                          800

CC5                                             218     9772                    10,000

CC6                                              65        2998                    3200

CC7                                                49       4953                    5000

CC8                                             25        797                      1000

                        2)Mortgage

       -original loan amount: 100000     owed:92000 

       -this is under contract and will be sold/paid off at end of January.

                        3) Car Loan

       -Auto Note 1: Original Loan Amt.       9,700                 Amt. Owed   7,000

       -Auto Note 2: Original Loan Amt         26,000             Amt. Owed   15000

I only need to get auto loans under 10 payments left for them not to be counted on DTI for mortgage loan.

So when I get $ from sale of house, I plant to pay off about 12K on one, and 5K on the other.

                          4)Student Loans:

           -Total Current Amount: 107,000    Not sure what original amount was.

           -Sigh……..nothing much I can do here. Needed these for various graduate degrees for job.

I have lots of other various credit lines that were closed in past many years. All were up to date, paid off and positively closed. I do have 2 credit cards that are recent within past 12 months, so that likely hurt a little bit my FICO. Have about 4 or 5 inquiries in past 2 years.

The only thing I see that is really an issue is the debt utilization rate? I am sure the large student loan doesn’t help, but I am unsure how much it is hurting me. Not much I can do about it though.

My strategy:

1. Pay off now 3 credit cards with lower balances.$542, $1496, and $797. Not really sure if I should pay them down to zero or leave 3 or 4% on them???? Wow! Your scores are getting hammered by ALL your high credit card balances! You need to put way more money on all your cards and your scores will soar! If a lender saw your current UTI you would be high risk.
   
2. House will be paid off end of the month.  
3. First of Feb. will pay most of auto loans off. From reading forums, it seems it is best to leave the lines open with some $ on them for best FICO? Where are you finding this?  You need ONE installment loan. You will gain waaaaay more points by getting your CC balances as low as possible. You do need to get the remaining loan to less than the 10 months if possible. Having low remaining balances on your installment loans will do virtually nothing for your scores compared to you paying off or down your credit card balances.
4. First Feb. pay of 2998 credit card.

That is about all I can do and still have a little money for a down payment on home and closing costs.

I would appreciate any feedback if I am mistaken on something or if someone has a better strategy to get FICO higher faster. THANKS in advance.

---

Okay, please give me as much information as you can so I can give you accurate information.

Let's get one thing straight...FICO treats installment loans differently than credit cards. FICO wants you to have one open installment loan and one open mortgage. FICO wants you to have at least 3 credit cards. Here's where the difference comes in...FICO doesn't really care what the remaining balances of installment loans are once the loans are 6 months old. (Sure it matters, but not very much.) FICO will start dropping your scores once you have more than ONE credit card reporting. If your reporting balances are more than 30% of your combined CL you will start to really get hammered. And if, heaven forbid you have a credit card that reports more than 90% of its' credit line, well then sir, you are high risk and your scores are getting severely hammered. You sir, have 4 CCs that are reporting UTI of more than 90%.

I think that if you were able to get ONE credit card to report a balance of less than 10% of its' CL and all your other CCs reporting a balance of $0 that you might pick-up a 100 point gain. (Plus or minus.)

You need to make a decision here. The only negative affect the auto loans will have when you apply for a new mortgage is their impact on your DTI. They will subtract your monthly auto loan payments from the monthly mortgage payments you would otherwise qualify for. The auto loans are having minimal impact on your scores! If you paid them BOTH off your scores would drop. You only need one auto loan open.

Your credit card utilization is however dropping your scores at least 75 points and it could probably be more, much more. This is where you need to make an impact.

[Imperfectfuture]

Some folks just don't like the answers if they can't get a house in 6 months or so.

[MarineVietVet]

Several comments have been removed because they added nothing to the discussion and were less than friendly or supportive.

How quickly some of us forget how little we once knew about credit and debt and for whatever reason harangue new members who ask the same questions they once did.

[Anonymous]

to jaime 123,  I think i was confused that  paying off/almost off installment and revolving affected FICO about the same. Thanks for clearing that up. I agree i need to do better with the CC's. Last year was pretty tough with 4 dependents all needing medical operations/procedures. Now that is over i will focus more on the CC's first.

to MarineVietVet,  thanks for the support. I am trying my best to learn little by little.

[jamie123]

---

@Anonymous wrote:

to jaime 123,  I think i was confused that  paying off/almost off installment and revolving affected FICO about the same. Thanks for clearing that up. I agree i need to do better with the CC's. Last year was pretty tough with 4 dependents all needing medical operations/procedures. Now that is over i will focus more on the CC's first.

to MarineVietVet,  thanks for the support. I am trying my best to learn little by little.

---

I re-read my earlier post and I apologize for coming off so harsh! I just saw you so close to making a few big mistakes that I became over excited and wanted you to fully understand the importance of the decisions that you will have to make in the near future.

You need to strike a balance in your situation. You have two competing interests that need to be addressed in a balanced fashion. One, you have scores that are being crushed by your high credit card utilization. Two, you have the opportunity to lower your DTI to qualify for a larger mortgage.

My suggestions:

1. Find out approximately how large of a mortgage you will qualify for by finding and running a mortgage calculator somewhere online. Perhaps try using two or three mortgage calculators from different sources and see how closely they agree/disagree. Use your existing payment structure with all your current payments as they are. Perhaps you will already qualify for the size of mortgage that you want/need. Typically a lot of people will qualify for a much larger mortgage than they know they can actually afford. If you plan on getting a mortgage that is close to what these calculators output, you really do need to double check your thought processes and finances. What you are trying to do here is find out how much cash you need to perhaps pay off a car loan but more importantly how much cash you will have to reduce your credit card debt.

2. If you qualify for a much larger mortgage than you actually need with your car payments in the equation you can then use most of your money to get the credit card utilization under control. Paying off or paying down your credit card balances will have by far and away the biggest impact in raising your scores. You need to apply as much of your extra cash to these balances as possible.

This is your current situation:

$34,200 total CC credit lines with $30,559 utilized = 89% utilization (Not good!)

You stated that you had $2800 to pay off 3 credit cards now plus $17,000 that you wanted to put towards the car loans for a total of $19,800.

I would suggest if at all possible you use all that money to pay down your cards like this:

                      1) Credit Cards                                                                                                                                                                               

                                             Min Due          Amount Owed                   Limit                          

CC1:                                            165        10000 -5680 = 4320            12000                           

CC2                                                54        542.25 - 542.25 = 0             700

CC3                                                57        1496 - 1496 = 0                  1500

C4                                                   0              0                                      800

CC5                                              218         9772 -6172 = 3600             10,000

CC6                                              65           2998 - 1846 = 1152             3200

CC7                                              49          4953 -3153 = 1800               5000

CC8                                               25          797 -797 = 0                        1000

This would leave you with 4 credit cards or one half of your credit card accounts with a $0 balance. Your overall utilization would drop to about 31%. The remaining balances on all your reporting cards would be 36%.

You need to get the CC balances down. A mortgage lender would give you a very hard time and probably not approve a mortgage with so many of those cards so close to their credit lines.

If you don't mind me asking, approximately what is your annual salary?

What is the size of the mortgage that you are looking for?