Building your credit

[Leozap]

2 of the BMW financial guys told me that if I get a loan for a car, I shouldn't pay off the loan within 2 years in a 5 years loan. Is this true? I paid off my e46 in 8 months and I did have some problem making a loan for the second car. Can anyone chime in? I am asking because I am thinking about getting out of the current loan for the e90 and get an e92 and I haven't owned the e90 for more than 2 years. And the reason why I want to get an e92 is that... it's more popular to get the after market parts .

[I Wanna go Fast!]

I track my credit on a regular bases. Paying off loans early did not make it go down. In fact it went up because of my debt to credit ratio...

[elh0102]

Originally Posted by Leozap

2 of the BMW financial guys told me that if I get a loan for a car, I shouldn't pay off the loan within 2 years in a 5 years loan. Is this true? I paid off my e46 in 8 months and I did have some problem making a loan for the second car. Can anyone chime in? I am asking because I am thinking about getting out of the current loan for the e90 and get an e92 and I haven't owned the e90 for more than 2 years. And the reason why I want to get an e92 is that... it's more popular to get the after market parts .

How much does BMW Financial make if you pay off early, and how much if you pay them for five years?

[kaykay]

Wrong forum

[shawshank772]

They are obviously not finance guys. I paid off my 17k loan on my 135i in 5 months and it didnt hurt my credit score. They have no clue what they are talking about...NONE!! Your debt to equity will go down. Plus it still shows a history of having a loan AND paying it off!! Your credit score wouldnt go down if you paid off school loans now would it??NOPE. They just want more money out of the deal.

[M3luvr]

AFAIK, as long as you did not have any late payments, paying off early should not drop your score. Maybe they are just saying that so you'll keep paying interest on your loan. They don't make any more money if you're not paying interest.

[jdgamble]

^ and ^^. This will not hurt your credit score at all. I always pay off my loans early.

[FStop7]

A brand new auto loan may hurt your score because it decreases the overall average age of the accounts on your credit report. For example, if you have 5 accounts that are 10 years old, your AAoA is 10 years. But if you get a new loan then the AAoA will drop, which may in turn cause your score to drop.

Debt to income ratio does not affect your credit score because your income is not a factor in your score - none of the 3 major credit reporting agencies track it. DTI matters to potential lenders, though - that's why they ask for you to state your income on a credit app. And that's why there is generally a lot more to getting credit than just your score. Any kind of major loan or mortgage is usually reviewed in multiple contexts - lenders look at all of your credit history, the amounts you've previously borrowed, your income, how long you've been at your job, whether you rent or own a home, some creditors even look at what you buy and where you live - which has stirred up a lot of debate about racial/ethnic profiling and discrimination being built into the system.

What also greatly matters on your credit report is utilization. If you have 5 credit cards each with a $2,000 limit and carry a $1,900 balance on each card, your score will take a massive hit because your utilization is nearly 100%. There is no exact number on ideal utilization, but a lot of people who research the FICO scoring model have found that a utilization of no more than 20% is ideal, otherwise your score starts to drop. Utilization is only based on revolving lines of credit, IE - credit cards with set limits. Installment loans and mortgages aren't factored in.

All of that said, the more aged, active accounts you have the better. The more 2+ year old open accounts you have in a good standing, the less of a risk you appear to be. People with 800+ scores often have 4 or 5 credit cards that have been open for 10 or even 20 years, each. Ideally speaking, you should pay off your 5 year loan in 5 years. That's the kind of consistency that a lender traditionally likes to see. If they see a lot of refis or early payoffs then they might be less willing to work with you because they see less money for them, in the form of interest paid over a shortened term vs. the full term of the loan. But these days it's fairly easy to get a good auto loan provided you have a good credit history. Car makers and their financial arms are desperate for business. Things are tougher in the world of credit cards, though. A lot of people with strong histories are having their credit card limits cut or the cards entirely terminated because the banks are super paranoid about the risk.

[DadzM4]

I was told that paying a loan off would not have any negative on my credit. Keeping a loan for a short period of time does not help your credit, meaning raise your score because there was not enough history to justify a higher score, or lower score, just a paid off loan.

[Leozap]

Originally Posted by DadzM3

I was told that paying a loan off would not have any negative on my credit. Keeping a loan for a short period of time does not help your credit, meaning raise your score because there was not enough history to justify a higher score, or lower score, just a paid off loan.

I think this answers my question. It didn't hurt my credit score but in a way it affected my approval for a good rate because of my credit history. I couldn't even get an approval for a lease transfer. My only option for a lease was to put 8 to 10k down. It makes more sense now Sorry if it's in the wrong forum eh...