SharksBreath

iTrader: (33)

long story short, bought a car 2 years ago and financed it for 5 years at 6.65% APR. i've been paying on it each month, on time, for 2+ years.

i have another line of credit with a MUCH better interest rate so i decided to roll the car loan into my revolving credit account. i paid off my loan with chase bank, got a clean/clear title in the mail a week later, and will continue to pay on my credit line for the next few years.

i always thought that if you paid off your car loan early, your credit would improve, or at least stay the same. well, mine is now worse. i won't get into the numbers but i'm a little shocked to say the least.

can anybody shed some light on this for me and let me know what the deal is? i can't seem to get a straight answer out of anyone.

thanks!

justnspace

iTrader: (1)

Doh'


revolving credit is bad credit!!!!!!!!

SharksBreath

iTrader: (33)

elaborate. i thought revolving credit BUILDS credit?

Mr Marco

CS goes down because they make money off your loan. Why would they reward you. You were actually a bad investment because they lost interest income.

That is why the loan is amortized over time with more interest up front.

OP, don't panic, buy a 3DTV and charge it to Best-Buy/Sears/etc with a low interest rate. Pay through the entirety of the loan and your score will rise.

But remember, when you buy your next car, they'll be looking for recent auto loan activity. So don't wait to long to buy a new ride.


Wait, you put the car loan on a credit card? Why?

justnspace

iTrader: (1)

yeah, once its paid off.

mrstak

iTrader: (1)

So essentially you paid off your loan with a credit card...and now you're making monthly payments on your credit card for the loan amount? Is that what happened?

subinf

Won't be permanent.

CBP08TL

iTrader: (2)

If you maxed out on your cc credit limit, i would assume that would hurt your score.

SharksBreath

iTrader: (33)

i've had this credit line with a very low APR for 10 years. thought i was making a smart financial move by getting my title clean and clear and cutting out the middle man.

thanks for the advice.



pretty much.

hope not.

i didn't max it out, i just added the loan amount to my line of credit that i pay each month.

dallison

It's revolving credit, i think that might have brought it down. I would think they are more critical of revolving compared to a car loan through say honda/toyota/etc.

subinf

How much outstanding credit do you have on the credit line?

Moog-Type-S

Wait so you did a loan shuffle....5 year car loan to a revolving credit card?

I think this is why you got "hit".

fuzzy02CLS

iTrader: (2)

Agree with everyone. You put the car loan balance on a CC. That hurts your debt to income ratio as well as your card max limit ratio in the short term.

I really would not worry about it if you plan on paying it down quickly. The score will go back up when you start making those payments.

neuronbob

This is the crucial factor. If you have used more than 50% of the line of credit with this auto loan, you hurt your credit score significantly. However, as fuzzy says, if you are planning to pay it down quickly, don't worry about it. Just pay on it (on time, every time) and your credit score will quickly go back up.

Pure Adrenaline

iTrader: (2)

You went from a secured loan to an unsecured loan. Your credit risk level just went up by a (what I'm assuming to be) 5-digit figure. Of course the credit rating agencies and lenders will see you as a higher risk now.

Live and learn.

pits200

LOL WHAT!!!

This has to be some of the funniest advice I've ever heard. The company who produced the loan has no say in how "paying off" the loan early will impact someomes credit score unless they are delinquent in payments then they have a say by reporting you to the credit bureau.

Point being, you didn't pay off anything, you just moved debt which is different than eliminating debt.

Your debt to Equity ratio is still the same so technically your score shouldn't go up but as for going down, thats strange.

Perhaps it's because an auto loan is a secure loan with the car being collateral where as your line of credit is not. (Whoops, Pure Adrenaline said this!)

Either way, I wouldn't expect movement because you "Paid off" your auto loan.


As for store CCs, those don't do people much for your credit unless you're in your early 20s or rebuilding credit.

dallison

Just keep paying and your score will rebound. It will probably take 3-4 months to see a marginal increase.

Mongolian

Um, Isn't cc debt compounding interest vs a car loan which is a simple interest... I'd check your cc bill and see how much interest you are paying. You might actually pay more.

LaCostaRacer

Oh boy, this thread is full of funny information and advice. If Sharky had simple interest, it would have been very foolish to refi the car to revolving credit. Simple interest is actually the worst loan you could have if you're a consumer because you pay ALL the interest up front before paying down principal. I haven't really heard of a simple interest loan for 30 years now- perhaps they still exist somewhere.

If you had a 10K loan with 5% simple interest for 3 years- that would mean your first x payments would pay the $1500 in interest that would accumulate during the life of the loan. It would not make since to refi after your 1st 3 payments of $500 (lets say) since the entire loan's interest would have been paid off 'simply' or upfront. Dealers in the old days love those loans- especially if they had to repossess the car.

Mongolian

You are most likely in the mortgage business or a loan officer, if I were to guess... I was simply referring to a non-compounding interest loan... You have taken this to a whole new level!

LaCostaRacer

^ nope just a Software Engineer that knows a lot about finance. Only a bonehead would jump on a Simple interest loan. When you finance from Acura, you're getting a compounded interest loan that is like a house loan where each month a portion is paid towards principal and the amount increases each month.

I think if you look at the link, it is as I described in my example earlier:
http://www.ehow.com/facts_7195433_si...oan-work_.html

mrsteve

iTrader: (1)

Are you planning on taking on more debt any time soon? If not don't sweat the lower score as others have said. If you're paying far less in interest you made the right move.

Bearcat94

1.) Revolving Credit worse for Credit Score than Installment Loan.

2.) Available credit is less than before 'the payoff'.

3.) Ratio of used credit to available credit is higher (worse) than before 'payoff'.

1killercls

The key word is "unsecured" debt.

SharksBreath

iTrader: (33)

thanks for all the advice everyone, not sure which direction to take it or what to do with it but i appreciate all the insight.

so here is what i did...

i tapped into my line of credit with Fraternity Federal. I borrowed $10,000 and my monthly payment of $349.78 didn't change from my original car loan through Chase Finance. the loan will bepaid off in full in April 2016 instead of September 2016 which will save me well over $1000 over the course of my loan since the interest rate is almost a 1/4 of what Chase was charging me.

i will keep paying it each month (will probably pay $50 more towards it as well) and hope my score improves by the end of the year.

anything else i can do in the mean time?
<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o:p></o:p>

fuzzy02CLS

iTrader: (2)

Not really.

I got suckered into a simple interest loan in Y2K. Financed my 1st ever new car from Chrysler. I had no idea what that meant. I paid it off in 2 years & was like wait why is my buyout still so high. Then it was explained to me.

justnspace

iTrader: (1)

keep paying the CC down, and try not to take on any new debt.

pits200

Ouch.

I once had a car dealership try ripping me off of 2% points from capital one. Two years ago I got a car then four months later a guy came across traffic and hit me head on and totalled it. So I had to get financed again and when I told the dealership I got 3.99% 4 months ago he said he'll give it a try. He calls back an hour later telling me great news that he got me 5.99% which is a fantastic deal. I ask for the guy he spoke with at capital one and I gave the loan officer a call. The car dealership guy then proceeded to tell me it was because he fed raised the interest rates and its because I had to apply for another loan and that's why its higher. At the time I had an 806 credit score. So I called capital one and after talking to their guy for 10 minutes I was approved at 3.99% since the guy said that is what they originally offered