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I'm thinking of buying our first home and don't know anything about mortgage market. I want to lower mortgage rate as much as possible. I'm trying to find if improving my credit score further will help me get better rate.

Annual income : $140K
Credit Score : 773
Auto loan debt : $18K @ 0%
Monthly auto loan payment : $710
Expected Mortgage : $200K

According to Credit Sesame analysis my monthly payments towards debt are $600 more than my peer group.
My credit score used to be 800+ before the auto loan and it took almost 60 point dip and now crawling its way up.
I wonder if I pay off my 0% auto loan with the hope going back to 800+ credit score. How much will it benefit me in my mortgage shopping?

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Why pay for something entirely in today's dollars when you can pay for it future dollars at no added cost.

acroBios (May. 09, 2013 @ 2:42p) |

Um, that's an expensive car.

suezyque (May. 09, 2013 @ 3:20p) |

Because $18k @ 0% vs. $18k as part of 30 year mortgage at 3.25%?

My brainer sees something you don't.

sloth911 (May. 11, 2013 @ 7:39a) |

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I'm not sure you'd find much difference in rates between a credit score of 773 and 800+. Personally I'd just keep the auto loan, make the minimum payments, and pocket the interest earned in your account until it's paid off in full. Won't be much interest, maybe enough for a free lunch, but better than nothing IMO.

Maybe you can negotiate with the auto lender for a bonus if you pay it off your auto loan early?

Keep the auto loan. You qualify for the best mortgage rates with a 740 with most lenders.

You will probably see next to no increase in Fico scores for paying off an installment loan.

It is possible that you might receive better terms for having a lower debt to income ratio (monthly debt payments/monthly income).

Paying it off will help DTI but probably not score that much. Are you going to be putting a lot down? Your loan is only 1.4x income so I can't imagine DTI is a problem.

I wouldn't focus on your score. The best thing to do is make sure your LTV is <80% so you don't have to pay PMI. Your auto loan isn't dragging you down, but PMI will definitely hurt.

Can't imagine having a $710 car payment. Also wouldn't bother paying it off early. 0% < your mortgage rate will be. Any extra money would be better spent going towards reducing the mortgage.

Keep the auto loan (free use of money).
Shop around for the best rates for the scores you have now.
Enjoy

Your credit score is as high as it needs to be, don't bother.

Although no one can quantify what paying the loan off would do to your score, you can at least quantify how much of a difference it would make on your mortgage. Sites like amerisave.com will give you different quotes between a 773 and an 800 for example. Not all brokers ignore differences above 740+.

That gives you half the equation.

Make sure you are looking at an actual FICO score and not one from any of the free monitoring sites. There can be a big difference between a true FICO and a free score. My Credit Karma score is nearly 60 points less than my FICO.

suezyque said:   Make sure you are looking at an actual FICO score and not one from any of the free monitoring sites. There can be a big difference between a true FICO and a free score. My Credit Karma score is nearly 60 points less than my FICO.

If your score goes by any of these names, it's a fake score (aka FAKO) -- Plus, Equifax Credit Score, VantageScore, Credit Karma and Transrisk. Basically, unless it says Fico it's a Fako.

The only credit score worth buying go gauge mortgage rates is the Equifax Fico score available from MyFico.com and (hidden on) Equifax.com. Unfortunately, that will only give you 1/3 of the three scores used to establish the mid score (they pick the median of your Equifax, Experian and Transuion scores) used for mortgage underwriting.

You can't buy any Experian Fico scores (though some people get this score with their PSECU account each month), and the Transunion Fico score available from MyFico.com is an older version that has largely been replaced in mortgage underwriting. Neither Experian nor Transunion currently sell Fico scores to consumers.

raringvt said:   Can't imagine having a $710 car payment. Also wouldn't bother paying it off early. 0% < your mortgage rate will be. Any extra money would be better spent going towards reducing the mortgage. I just applied at penfed to refi my debt-free cars. Car payment will be ~$1,500 a month, but that cash will be generating far more than 1.79% I'm paying interest. Not advocating buying expensive cars, just that the use of debt can be prudent.

suezyque said:   Make sure you are looking at an actual FICO score and not one from any of the free monitoring sites. There can be a big difference between a true FICO and a free score. My Credit Karma score is nearly 60 points less than my FICO.

Did you purchase the real FICO from TU or Exp directly ? Just wondering.

As others said the biggest affect this will have related to your home shopping is in your debt to income ratio

If you remove that $700 payment from your report you can qualify for a much larger mortgage- maybe $200k more

But if you are not planning on buying an expensive home thats at the limit of what you qualify for , then it won't matter much .

Why keep a loan (even if it is 0%) when you can be debt free? Seems like a no brainer to me...if it were me I'd pay it off and never borrow money again (except the house).

Dissones4U said:   Why keep a loan (even if it is 0%) when you can be debt free? Seems like a no brainer to me...if it were me I'd pay it off and never borrow money again (except the house).

Wow!

It's a free loan. If she/he doesn't have any where to invest the 18K, as much as I like debt free, keep the car loan. FICO score is already high enough for a good rate, paying off the car will make very little difference in the score in this case.

If you need the cash to make at least a 20% down payment on your home so you won't have to pay PMI, then definitely hold on to your cash.

http://www.realtor.com/home-finance/homebuyer-information/the-pr...

ach1199 said:   suezyque said:   Make sure you are looking at an actual FICO score and not one from any of the free monitoring sites. There can be a big difference between a true FICO and a free score. My Credit Karma score is nearly 60 points less than my FICO.

Did you purchase the real FICO from TU or Exp directly ? Just wondering.



Equifax.

The credit score could still be different from the report the bank ran. Banks buy different variations/models of credit reports. The best place to get your credit score is from the bank that is going to do the mortgage.

ComputeThis said:   The credit score could still be different from the report the bank ran. Banks buy different variations/models of credit reports. The best place to get your credit score is from the bank that is going to do the mortgage.

Even within the bank itself, they may be using different FICO model for different credit product they're offering so for Auto they might be using FICO Auto score model, for mortgages they might be using FICO 08 model, for credit card some other model etc. Each model can have a variance of 50 points.

Thanks all for your responses. I have checked all credit scores
1. Credit Sesame (Experian) : 773
2. Credit Karma (TransRisk) : 787
3. myFICO (Equifax) : 761

Based on majority of responses, I will likely qualify for best possible mortgage rates and it's better to keep the auto loan. I agree the money is better utilized towards down payment on the house.

BTW, I didn't buy an expensive car. It was $30K Toyota with $5K down. Monthly installment is high because Toyota allowed 0% auto loan only with a 3 year loan-term.

I'm not going to buy an expensive home either. So I'm not quite looking for mortgage higher than $200K.

FW is a great forum and I appreciate y'all taking the time to respond to my question.

Dissones4U said:   Why keep a loan (even if it is 0%) when you can be debt free? Seems like a no brainer to me...if it were me I'd pay it off and never borrow money again (except the house).

Another disciple of Dave R.... oh wait, thread few months old...

Dissones4U said:   Why keep a loan (even if it is 0%) when you can be debt free? Seems like a no brainer to me...if it were me I'd pay it off and never borrow money again (except the house).

Why pay for something entirely in today's dollars when you can pay for it future dollars at no added cost.

dealsucker2011 said:   

BTW, I didn't buy an expensive car. It was $30K Toyota



Um, that's an expensive car.

Dissones4U said:   Why keep a loan (even if it is 0%) when you can be debt free? Seems like a no brainer to me...if it were me I'd pay it off and never borrow money again (except the house).

Because $18k @ 0% vs. $18k as part of 30 year mortgage at 3.25%?

My brainer sees something you don't.



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