Paying off Installment loan too early Drops Score?

The types of credit you use (otherwise know as your "credit mix") accounts for 10 percent of their overall FICO score. And in order to maintain a top score, you need to show that they can responsibly manage various types of open credit lines including mortgages, installment loans, and credit cards.

So if your auto loan is the only installment loan you have in addition to a few credit cards, making that last payment or paying off the loan in a lump sum can hurt your overall credit mix. In some cases, consumers have even reported a drop in their score of 50-60 points, disqualifying them from receiving the best interest rates on mortgages or other loans.

How much do you still owe on your car and how many payments do you have left?

 

If your monthly payments are really hurting your DTI ratio, I would talk to your lender about what they would like to see. Like you said, you may be able to pay off a large chunk while still keeping the loan open until you close on your home loan.

You just need to be really careful these days about making big moves like this when you're trying to get approved for a home loan. You don't want to be dealing with an unanticipated drop in your credit scores right in the middle of the approval process.

 

As long as it doesn't cost you much to do the refi and you'll be saving interest over the life of the loan, then that might be a good idea. Just make sure you do the math and determine that it's worth it. You should also remember that the hard pull for the auto refi may drop your credit score 5-10 points, although it should bounce back in a few months.