We really need to purchase a home this year and a couple of our credit scores are lagging around the 600 mark. We currently owe 22k on a car installment loan. My question is if we pay 20k against this loan will it help our scores enough for a jump to the 640 range we need. Thanks
Installment loans aren't included in your overall credit utilization ratio (30% of your FICO scores), which accounts for a large chunk of your credit scores, but your credit cards are. Do you know what your current credit utilization ratio is? Getting that down below 10% will have a much greater impact on your FICO scores that paying down the balance on your auto loan. In fact, paying down the balance on your auto loan will likely have little effect on your current scores.
Do you carry any balances from month to month? Or are you at 15-20% just based on the percentage of credit you're using before you pay off your balances in full? Regardless, work on getting this number down under 10% first and then see what effect it has on your credit scores.
Nice- that should help a bit. Do you have a negative marks on your credit reports, or do you just have the car loan which I'm assuming is in good standing?
The only reason I would consider paying down the auto loan is if your debt to income ratio is too high. This has nothing to do with your credit score or credit cards. It is what a underwriter looks at the see you qualify for the mortgage loan. They add up all of the debts on your credit report and divide it by your income. They also calculate this for your new mortgage payment and your income. Thanks! Heather with BoostMyScore.NET
Yes I do have several negatives. They are all paid closed accounts now. I had no luck in geeting them negotiated for removal. I believe my income to debt ratio is fine although I'd like to get rid of the 22k we owe on the car.
I'm not sure how old those paid negatives are, but they're going to hold your FICO scores back for awhile until they age and eventually fall off your credit reports. That fact that they are paid will look better in the eyes of the underwriters though. The older they are, the better.
Paid them off in the past year although they are all mostly 4-6 years old. Is it better to have credit cards at 1-10% usage or at 0% usage?
