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Will a car loan increase my credit score?

775orbust
Established Member

Will a car loan increase my credit score?

In may 2020, experiences a 20+ fico score drop due to paying off my car loan.

I want to apply for a mortgage and FAST.

the reason for the score drop was due to lack of a credit mix so in my head...I'm thinking to mix things up.

Is this a dumb rationale? I need a new car anyways.

I'm not sure if getting the car will help or hurt my mortgage score. 

8 REPLIES 8
MiaM
Frequent Contributor

Re: Will a car loan increase my credit score?

I would assume getting a car loan would hurt you in getting a mortgage as it raises your debt to income ratio. If I were you, I'd buy the house first then the car. But would suggest contacting a loan officer.

Message 2 of 9
775orbust
Established Member

Re: Will a car loan increase my credit score?

Thank you!

Message 3 of 9
RadioRob
Established Contributor

Re: Will a car loan increase my credit score?

The general logic is you don’t want to take on new debt 6 months from when you want to apply for a mortgage.

With that being said, if you NEED a car it’s certainly a reasonable thing. Underwriting might require a letter of explanation. If it’s not yet reporting when you apply, you would need to provide a statement for it to include in your DTI calculations.

Adding a loan will add a HP ding to your file and add a new loan at 100% utilization. If you are doing this for simply trying to improve credit mix, look at a SSL loan. (Search this board for that topic for details.)

But I’ll be honest... if a mortgage is happening in the next few months, I would avoid ANY new credit and look at other ways of improving your score such as reducing utilization, AZEO, or anything else. You could hurt your score with a new account AND it would make things more difficult for you in underwriting.
Message 4 of 9
775orbust
Established Member

Re: Will a car loan increase my credit score?

Thank you so much! This is the exact answer I was looking for. I will continue with azeo and hope this helps me out. My median mortgage score right now is 712 but my goal was to bulk it up to 730 before applying. 

Message 5 of 9
kkboom
Frequent Contributor

Re: Will a car loan increase my credit score?

Yes, I agree, wait on the car. Did your lender mention a different rate between 712 and 730? I've heard of 760 getting the best score.


Gardening until 10/2021
Message 6 of 9
Birdman7
Super Contributor

Re: Will a car loan increase my credit score?

@775orbust OK some great advice here, but we’ve got a faulty premise that we need to explore.

First, when you paid off the loan, the 20 points you lost, I guarantee it was on version 8+, not the mortgage scores, right? Consequently your proposed action of replacing it, even if you could, could only hope to replace points to version 8, not to the mortgage scores. So all this is irrelevant to a mortgage anyway, because they don’t use version 8. SSLs, all those strategies are for version 8, not mortgages.

One other clarification. This has absolutely nothing to do with mix. As long as you have a closed loan on your record, which you do, you have your mix points.

Version 8 gives you bonus points for having a installment loan paid down to a certain threshold, and then it gives you even more points when you get to the lesser threshold. But, once you pay it off and close it, you lose those bonus points that you had been given when you had previously paid it down and earned those bonus points. That’s what happened when you paid off your loan.

In sum, paying off that loan didn’t hurt your mortgage scores. Go find out what your true fico mortgage scores are upon practicing AZEO and give us your profile specifics and we’ll see where you’re at.

As @MiaM and @RadioRob said, taking on new debt in the run up to a mortgage is the absolute worst thing that you can do. Good thing you came here and sought advice! Good on you!

-Scoring wisdom: General Scoring Primer, Payment History, Amount of Debt, Length of History/New Credit, Mix/Disputes/Freezes/Searches, Mortgage Scores/Negative Reason Codes/V.9, Helpful Links,
CassieCard’s Reason Statements Thread,
iv's friendly statement to reason statement concordance,

ccquest’s Workbook to calculate metrics.
Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.




(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 7 of 9
775orbust
Established Member

Re: Will a car loan increase my credit score?

You're right! My 8 score was the drop,  not my mortgage score! Thank you for that clarification.  

I was just reading through boards here about getting the mortgage score to 730. 

Heres a little more details on my profile. 

I have 3 cc's. 

I plan on paying the pay pal and discover off next Friday. I'm trying to avoid pulling from my savings to pay.

Discover

539/5500

Capital One

339/3500

Pay Pal

375/3500

 

Great Lakes

Owe $14669

 

I'm hoping paying the two off help me get a bit of an increase.

 

 

 

 

Message 8 of 9
Birdman7
Super Contributor

Re: Will a car loan increase my credit score?

Yes paying off two and bringing the remaining 1 to 29% or less individually and 9% or under for aggregate should offer some points, but again, if and how much depends on your profile, and I don’t know what scorecard you’re in because I don’t know enough about your profile.

Do you have any derogatories? If so detail them. How many accounts on your credit report open and closed? Age of oldest account? Age of youngest revolver?
-Scoring wisdom: General Scoring Primer, Payment History, Amount of Debt, Length of History/New Credit, Mix/Disputes/Freezes/Searches, Mortgage Scores/Negative Reason Codes/V.9, Helpful Links,
CassieCard’s Reason Statements Thread,
iv's friendly statement to reason statement concordance,

ccquest’s Workbook to calculate metrics.
Clean/Thick/Mature/No New Revolver - 8,9; Clean/Thick/Mature/No New Account - 5/4/2.
Correct Ag.Util. under 5% all times. (Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.




(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 9 of 9
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