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Message
Paid off my last car loan in full
Posted on 7/18/14 at 10:03 am
Posted on 7/18/14 at 10:03 am
Credit score dropped 30 points.
I knew it would take a hit since the loan was 3 years old, but didn't expect 30 points.
I knew it would take a hit since the loan was 3 years old, but didn't expect 30 points.
This post was edited on 7/18/14 at 10:04 am
Posted on 7/18/14 at 10:26 am to vuvuzela
quote:
I knew it would take a hit since the loan was 3 years old, but didn't expect 30 points.
That is a problem for people who try to pay off cars early - I've had the same issue.
An alternative (and not for everyone, I might add) - is a HELOC where you tap the equity in your home, then pay it back on your schedule - if you always keep a small revolving balance, the loan life will continue to grow and grow. It can function like a mega credit card. You can tap it for short-term medical expenses, pay off credit cards, and, buy cars. It can get you in trouble and does tie up the equity in your home, but it can function as a buffer against the effects of losing the car loan's effect on your average loan length.
Posted on 7/18/14 at 10:40 am to Ace Midnight
I paid mine off yesterday after 4 years. I didn't even think about the credit score dropping.
Posted on 7/18/14 at 10:44 am to gsvar2004
paying off a car early and your credit dropping is freakin stupid. This world i wonder about sometimes.
Posted on 7/18/14 at 10:46 am to Double Oh
quote:
paying off a car early and your credit dropping is freakin stupid. This world i wonder about sometimes.
It only really happens if it drops the average age of your open accounts.
It can boost your credit worthiness as it reduces your LTI ratio - however, the net effect of it dropping a credit score - objectively, is silly to me for a lot of reasons.
Posted on 7/18/14 at 10:50 am to Double Oh
I don't get this. I paid off my truck note last August(32 months into a 60 month note) and my credit score went up 30 points. Why in the hell would it go down?
Posted on 7/18/14 at 10:56 am to LumbermanRon
I don't have many accounts which have been opened longer than 5 years. In fact I only have 1 now, which is my Discover Card. My mortgage is 3 years old now, so the length of my credit was negatively impacted by paying off the loan. Obviously it impacted my score much more than my debt ratio which was relatively low already.
This post was edited on 7/18/14 at 10:57 am
Posted on 7/18/14 at 11:18 am to vuvuzela
That is absolutely insane. The whole purpose of credit score is as a quick predictor of risk. By having PAID OFF your car, you have proven both that 1) you fufill your obligations and 2) you have additional money available now per month. In other words, you are a better risk today then you were last week.
Having an installment loan close out, because you paid it off, should not hurt your credit score.
Again, absolutely insane. This is why I don't play the credit score games. I just try to handle my obligations and try to avoid new credit unless I have a good reason for it.
Having an installment loan close out, because you paid it off, should not hurt your credit score.
Again, absolutely insane. This is why I don't play the credit score games. I just try to handle my obligations and try to avoid new credit unless I have a good reason for it.
Posted on 7/18/14 at 11:27 am to LSUFanHouston
quote:
This is why I don't play the credit score games. I just try to handle my obligations and try to avoid new credit unless I have a good reason for it.
Same. I'm almost 40 and have found that your score doesn't matter all that much for most credit needs, as long as it is over 700 or so. Even when my credit score was in the 600's, I didn't have much problem getting credit, just not the best interest rates. People get too hung up on the actual score. Sure it matters, but showing you can handle your debts timely matters more.
I have a mortgage, 2 student loans, a HELOC, 2 car loans, and 1 credit card on mine and can't seem to get it over 750 even after 10 years of consistently paying on time on each, though I rarely use the credit card or HELOC. I quit worrying about it 5 or 6 years ago.
Posted on 7/18/14 at 11:28 am to vuvuzela
quote:
Paid off my last car loan in full
:standingovation:
Posted on 7/18/14 at 11:29 am to LSUFanHouston
quote:
absolutely insane.
Agreed. Pisses me off the more I think about it.
Posted on 7/18/14 at 11:48 am to The Spleen
quote:
Even when my credit score was in the 600's, I didn't have much problem getting credit, just not the best interest rates.
This is why it is most significant for home financing - because of the length of the loan, small blips in the APR results in major expenses.
As Dave Ramsey says - a good credit score is the result of good money practices, not the goal.
Posted on 7/18/14 at 12:48 pm to Ace Midnight
So to keep the average age of my open accounts from dropping, should I leave like $1 in my student loan account and let it just accumulate interest and keep the account open? I have about $1300 left to pay off, well ahead of schedule, and the age of the loan is about 10 years since I first took out a loan in 2004.
Maybe just do that until I secure financing for my next mortgage when I look to build in a few years?
Maybe just do that until I secure financing for my next mortgage when I look to build in a few years?
This post was edited on 7/18/14 at 12:49 pm
Posted on 7/18/14 at 1:06 pm to LSUFanHouston
quote:
Having an installment loan close out, because you paid it off, should not hurt your credit score.
Again, absolutely insane. This is why I don't play the credit score games. I just try to handle my obligations and try to avoid new credit unless I have a good reason for it.
Yep me too. House is paid off, vehicle is paid off. Fawk the credit game.
Posted on 7/18/14 at 1:42 pm to That's BS
quote:
That's BS
You're seriously overthinking it.
Posted on 7/18/14 at 1:47 pm to vuvuzela
Think about it - the goal of the credit system is to encourage people to take out loans/consume. That's how they make money. Frugality, for them, is bad for business.
Posted on 7/18/14 at 7:47 pm to Cold Cous Cous
quote:
Think about it - the goal of the credit system is to encourage people to take out loans/consume. That's how they make money. Frugality, for them, is bad for business.
Exactly. Paying off a loan early is lost revenue for the lender.
I don't worry about my credit score. I pay off my debt as fast as I can and pay off my credit cards every month.
Posted on 7/18/14 at 10:47 pm to That's BS
quote:
So to keep the average age of my open accounts from dropping, should I leave like $1 in my student loan account and let it just accumulate interest and keep the account open?
Eventually the minimum payment will force a payoff.
quote:
I have about $1300 left to pay off, well ahead of schedule, and the age of the loan is about 10 years since I first took out a loan in 2004.
That could be an issue if that is your oldest credit line. This is why people need to be careful about paying off an canceling all their credit cards - while I'm not saying never do this - the consequence of doing it to your oldest account can be detrimental to a credit score and a future mortgage payment.
Posted on 7/18/14 at 10:57 pm to Cold Cous Cous
quote:
Think about it - the goal of the credit system is to encourage people to take out loans/consume. That's how they make money. Frugality, for them, is bad for business.
You are absolutely correct.
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