What would you do?

[smallfry]

I plan on retiring and moving South in about 7 years. I have two negatives on my reports. One is a BK which falls off mid 2010 and a state tax lien which I paid that falls off mid 2009. All the mortgages I ever got and paid are off my report already. I currently have one car loan which will be paid off in 2012. I only have one credit card 5K limit now paid down to $500. Walmart 500 limit no balance. 6th Avenue Electronics 4200 limit now no balance. Sleepys 3000 limit a no interest loan for a bed 2400 left see no incentive to prepay a no interest loan. So that's it. When I will be looking for a mortgage for a home down the road I will have one CC and one car loan. Didn't get my true FICO scores yet but my Experian Plus Score is 708 and my Equifax score from the free report is 691. I actually can see my FICO score dropping into my time window for a house. What can I do? I have no other problems on my credit and will probably be dropping some positive trendlines as time moves along.

[Anonymous]

Bottom line is you're in great shape. I would work on getting that car loan paid off quicker...you'll save interest that way. And make sure you keep those cards active...go to Walmart, charge $40 or so, then PIF. That keeps the card active without risking a high balance being reported (even if they happen to report the day after you accrue the balance, you're still only talking 8% utilization or so).

[smallfry]

Know what? If I pay the car off as per amortization schedule I will pay c. 33K on a 25K loan. Even if I accelerate the payments double or 900 a month I only save about 3K over 4 years. I understand that a prepaid car loan doesn't buy you many FICO points and I think I can do better than that by saving the extra principal payments and investing those proceeds. Thanks for your input.

[Anonymous]

Heh...that's strange. But hey, if you've gamed it out and run the numbers, that's fine. Come to think of it, if you got a low interest rate, that sounds about right.

I was recommending paying it off for the interest savings and the psychological benefit of not being in significant debt far more than any potential FICO improvement (the last of which would admittedly be insignificant).

[smallfry]

IF this were a home mortgage I would and have prepaid the loans but due to the Rule of 78's if you don't pay it down like yesterday the interest savings are nearly negligible.