I Can Afford to Pay Off My Car… But Should I?

This advice sounds crazy to many people…  Don’t pay off your car if you are trying to build up your credit scores.

“But why?  Isn’t paying off debt a good thing?”

Well, under normal circumstances, yes, paying off debt is a good thing.  However, when you have an installment loan on your credit report that has a good history of on-time payments, it helps your scores.  When you pay that loan in full, the lender will close the account and when that happens, the credit line drops off of your report and your scores could go down as a result.

Now, the drop might only be temporary, but if you are in the process of buying a home, any drop in your scores could change how you qualify for the mortgage loan.

Our recommendation is to secure your mortgage loan first, and then pay off the car.  If your car needs to be paid off in order to qualify, then set it up to be paid through escrow concurrent with your home financing.  This way the car payment goes through AFTER your home transaction is complete.

Give us a call if you have any questions!