Question on credit mix.

[Anonymous]

As of yesterday I have no more credit card debt!  That's nearly $29K in debt paid off! 

Now that I'm done patting myself on the back, , I have a question about installment loans and credit mix.  I know that if you pay off your only installment loan you score will probably go down because you're losing that in your credit mix.  

I currently have: a lot of closed Student loans, and 1 open student loan that won't be paid off until at least 2019.  1 closed car loan and 1 open car loan.  And a LOT of credit cards, a few that are closed, and in those credit cards I have a couple of store cards and many Visa/Mastercard/Discover/Amex, etc.  

I want to buy a house this year, and my original plan was not to pay the car loan off, because I'm worried about losing FICO score points, however, I would really like to pay that loan off so that when I buy my house my only debts are the house and my student loan.   I would feel more financially secure if I was only paying a mortgage payment and the student loan payment, and not having to fork over $507.96 a month on my car loan.  

Do any of you experts out there think I will be okay if I do pay the car loan off, because I still have a student loan in my mix, or...should I keep my car loan open until after I close on a house, so I don't lose the points?

Thank you! 

[haulingthescoreup]

You should be fine with paying off the car loan. Looks like that SL will be with you a good, long while, huh?

All you need in credit mix department is one bank card, one retail/ gas card without the Visa etc logo, and one installment loan, all open, of course.

Looks like a smart move to me, reducing your DTI.

[cobaltnv]

Paying off the car loan will likely not effect your FICO score negatively as you have another installment loan open. If you are paying off the car to make your DTI look better keep in mind that the underwriter will ignore your car loan in the DTI calculation if you have fewer than 10 payments left. So you might consider using the money you were going to pay the car off with as additional reserves and/or increased downpayment.

  Of course if you have what you need for a downpayment and reserves etc, then go ahead and pay off the car and save some interest!

Congrats on being credit card debt free!!! 

Good luck 

[Anonymous]

Thank you HTSU and cobaltnv!  I'm going FHA,which is 3.5% and no reserves, and I have a part time job that for the first few months I own the house I'm going to be funneling into savings, so I'm not really concerned about the DP and reserves. As I say that, however I am putting $100 a month into savings. I know that's not much but I am beginning to work on an emergency fund.

I'm also not concerned about the DTI, because my lender said I prequal for $135K without paying the car down, and would prequal for $200K by paying the car down to less than 10 payments.  

However, my personal limit is $150K, and I really don't want to go any higher than $135K and honestly would be very happy with a mortgage that's around $100K.  

I just really don't feel comfortable making that mortgage payment with the car payment at the same time and the more I think about it the more I want the car paid off prior to paying mortgage payments.  I've kept myself really strapped in terms of cash and things I allowed myself to do while I was paying my CC's off and I don't want to end up in a house and back strapped for money because I'm paying for not only living expenses, repair expenses on the house, but also my car payment. 

[haulingthescoreup]

There's a lot to be said for wiggle room when it comes to cash flow.

And I'm glad to know that there's someone else whose personal limit is a lot lower than what lenders want to give you! DH and I were aghast a quarter-century ago when we found out what we qualified for, and it never has changed. No way would we want to have that kind of mortgage payment, or that kind of debt! Our $810/ month PITI is fine, thanks.

[Anonymous]

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@Anonymous wrote:

Thank you HTSU and cobaltnv!  I'm going FHA,which is 3.5% and no reserves, and I have a part time job that for the first few months I own the house I'm going to be funneling into savings, so I'm not really concerned about the DP and reserves. As I say that, however I am putting $100 a month into savings. I know that's not much but I am beginning to work on an emergency fund.

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Your scores are plenty high to get the best FHA rates.  Most lenders have best FHA rates at 620+ per the experts on the mortgage board.  Either way, you're golden in that department, even if you do lose a few points and the lenders do get a bit stricter Congrats on the loss of your debt!

[RobertEG]

I am interested in knowing whether FICO scoring considers only open accounts in determining credit mix, or whether closed prior installment/mortgage loans factor in.  I have had several auto and mortgage loans in the past that are now paid off and closed in good standing, and are still listed in my CR. Currently, I only have CCs.

Under the theory of credit mix, it demonstrates the proven ability to carry multiple types of credit, and pay timely over an extended period. Does this all just go away when one is so successful in handling these debts that one pays them off?

[Junejer]

Only open accounts factor into credit mix--closed ones do not.

[Anonymous]

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@Junejer wrote:
Only open accounts factor into credit mix--closed ones do not.

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how do you know this? can you provide proof?

[llecs]

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@Anonymous wrote:

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@Junejer wrote:
Only open accounts factor into credit mix--closed ones do not.

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how do you know this? can you provide proof?

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I'm not Byrdman, but FICO mentions this quite a few times within their website, including webinars, and from Admins on these forums. Personally, I've been rebucketed due to a lack of installment loans after I paid off my last and only loan. It still reports but the postive and negative factors were shaken up and saw a minor drop on TU after paying off that loan and reported as such. I've seen other examples in here where posters paid off and closed their second to last CC, and despite having a near $0 balance on the other, they experienced a significant score drop due to the lack in the mix after the other reported closed. Of course this applies to FICO scoring. There are FAKO scores that include closed TLs in their mix (e.g. PLUS, Vantage I think).