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Your FICO is an industry assigned score on how predictable you are with credit. Pay as agreed score goes up, you are being predictable they are getting all the principal and interest that was expected at origination. Pay ahead, being less predictable and institutions are not getting the full amount they planned on, score goes down a little. Pay late or not at all, again not predictable and more dangerous to loan too, score goes down allot.
Sort of, but not really.
The bolded parts aren't correct. FICO has no insight into the agreement between the borrower and lender with regard to interest rates and total expected payback.
All FICO takes into consideration with installment loans is the amount owed, the amount of the minimum payment, and whether the payment is made on time each month. Paying extra actually helps your score because it reduces the total amount of your debt more quickly. Paying off an installment loan removes a measurement of your creditworthiness (the ability to pay on time) which may result in a ding; but it also eliminates that monthly financial obligation which could result in a bump because it frees up money that can be used to make a payment on something else.
Whether the net effect is positive or negative probably depends on what the rest of your credit picture looks like.
I haven't had a car loan in decades. My credit score is usually in the 815 to 830 range. I have 5 credit cards. Usually about 1% to 2% utilized credit. It shows three closed accounts. A credit card, an overdraft line of credit, a mortgage that was paid off 3 years ago. What matters more than anything is to never pay anything late. Having credit cards for many years also helps since the age of the oldest account matters.
Having credit cards for many years also helps since the age of the oldest account matters.
Toward the end of her life I was added as an authorized user to my mom's credit card, which she had had since 1976. I didn't think being a signer on her account would have any impact on my credit score, but the next month my score jumped 20 points.
Just mentioning this again.. VantageScore, they base your score off the following..
Credit Card Utilization - Should be below 10%
Payment History - Percent of payments you've made on time. Should be 100%
Derogatory Marks - Collections, etc on your credit history. Should be 0.
Age of Credit History - 9+ years is where you want it
Total Accounts - 21 or more for excellent
Credit Inquiries - hard pulls of your credit within 2 years. 0 for excellent
Now, with all that.. I have an 805/812 through creditkarma, which uses the VantageScore model.
3% credit card utilization.. I've got a few no interest promotions that are slowly being paid off because.. Well, it isn't costing me nothing. This is usually 1% or lower.
Payment History - 100%
Derogatory Remarks - 0
Age of Credit History - 7 years 4 months. I opened a Walmart card for no interest a few months ago, so that's pulling me down here a bit. Home Depot card is 10 years 1 month, Mortgage is 9 years 5 months, USAA credit card is 8 years 11 months, Lowes card is 8 years 2 months, and Walmart card is 2 months.
Total Accounts - 9.
Credit Inquiries - 2 from Equifax, 0 from Transunion. I took out a loan for home repairs in December and upped my Credit Card limit in February.
So.. All that gets me an 812 with Transunion and 805 with Equifax.. So, figure 3.5 points per hard credit pull, in case anyone is interested.
It seems that any credit event will cause your credit score to take a hit, if temporary. Any time you apply for a loan, open a new credit account, or have credit inquiries for any other reason, your score takes an instant hit. But it usually recovers very quickly if there are no ongoing issues.
The minor blip in credit that you might take temporarily (and it might even improve as you lower your credit utilization) is far outweighed by not having to pay interest or a car payment. Although that would depend on the interest rate. But focus on having money before you focus on your credit score.
Save the interest and pay off the loan. Who cares if your credit score takes a dip for a little while? O you do? Ok. Then apply for several free credit cards (before you pay off the loan) to build up your available credit. These might offset you decline from paying off the loan.
Thanks everyone for their responses. Here's some more information about the car loan and my financial situation.
Credit union I am with gave me a 3.24% auto loan for 5 years. I will be paying $499 for 60 months. Got the Accord for an out the door price of $27,096. This will be my first big loan. Never had a car or mortgage before. Always have rented apartments (still do; at my work in fed government I have to relocate to promote myself). Major thing is having installment loans on my credit history, so this auto loan will help.
I'm 33 and have had credit cards since 2005, and still have that card open. My credit scores through Credit Karma show 754 through Trans Union and 741 through Equifax. I had student loans, $6,0000 total but finished them last year, so other than my auto loan I have no debt. I have $0 credit card debt. I have 5 credit cards. Oldest one is from 2005 and newest one is from 2014.
The only thing that is bad on my credit history is that around 2008, 2009 I had a Discover Card and missed about 5 consecutive payments (my fault) and when I first started paying my student loans around 2010 about 4 of my payments were a few days late. Again, my fault. Can anyone recommend how to get these two things off my credit union? The Discover Card was closed by them and I already finished paying my student loans. If it were not for these two things my credit would be even better.
No ideas on how to remove. You could add a short statement to your credit report saying you were late because of problems that have been solved. But with your score I don't think it will help much. You should be in good shape.
You might apply for a Discover card. If they give you one that might help you look a little better.
When it closed officially a month later, still no drop in points. Guess some folks have varying other trade lines that could have effected it. Mine didn't drop though.. So that's my story and I'm sticking to it.
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