should I pay off my car or keep making payments?

[bbrooks123]

I am almost a year out of BK7 and I reaffirmed my car. Right now I am trying to rebuild credit. I have 2 credit cards that are unsecured and subprime cards one has $1000 limit the other is $600. I charge gas on the cards and pay it off a couple times a month, I never carry a balance on either card. I really don't like using the cards at all but want to re-establish credit. My question is, for once in my life I am in a position to be 100% debt free. I owe $4000 on my car and could have it paid off in 2 months. My question is, should I continue to make payments on the car to build credit history? or pay it off early and enjoy no car payments for the next couple years?

If anyone is willing to give advice I would appreciate it.
Thank you in advance

Last time I checked my ficos they are all over 700.

[ssmdem]

If your scores are that good, me personally, I'd pay off the car.

[Logan]

It' would be better for your credit if you paid your cards in full after the statement is issued(utilization under 10%). If your car is reporting on your credit report then it would be better to keep the loan. If it were me I would pay the loan off.
IMO you're better off doing what feels right than what's best for your credit since paying your bills on time and distance from your BK are the most important things to improve your score once you have your trade lines set up.

Logan

[ScaredINMich]

I wonder about this too. We just had our 341 this week, but DH and I were talking and we can have our SUV paid off in the next few months with the savings from not paying the house and other expenses, but I wonder if, credit wise, it is better to keep it until the end of the year or something.

Any other thoughts on the subject?

[AtlBkAtty]

Bbrooks and Scared, what interest rates are we looking at on these vehicles?

[Amy26]

Installment loans don't do terribly much for your score. It of course helps your payment history and average age of accounts but its hard to say what it will do to your actual score. Everyone is in different "scoring" buckets and doing something in one bucket might have a different affect than if you were in a different bucket.
Installment loans don't count in your "revolving" utilization and the revolving utilization is the one that mostly affects your score directly. Generally, the only time an installment loan is going to greatly impact your score is if you go late or default on one.

For instance, my student loans are actually reporting as OVER the credit limit. They have been in deferment for a number of years and the original loan amount (making this up) was 20,000 and now its like 25,000. So, it looks like my utilization on my installment accounts are over 100% but it has no adverse impact on my credit score as long as the trade lines continue to report positively.

If you have the means to pay it off, then its probably ok to do it. I don't believe it would have a negative impact on your score as long as you have other accounts that you can use for payment history.

[bbrooks123]

I have a 9% interest rate on the car because it was a used car loan and my debt to income ratio was bad at the time I had to refinance it after my divorce. I have been debating this for months whether to pay it off or keep the loan. I appreciate any advice anyone can give me. Thank you

[bbrooks123]

Bbrooks and Scared, what interest rates are we looking at on these vehicles?

I have a 9% interest rate on the car because it was a used car loan and my debt to income ratio was bad at the time I had to refinance it after my divorce. I have been debating this for months whether to pay it off or keep the loan. I appreciate any advice anyone can give me. Thank you

[bbrooks123]

Logan, thank you for the advice on making payments on the credit cards once the statement posts. They are both high interest credit cards 23% and 26%, If I wait until they post the statement will I get an interest charge?

Amy, thank you for the credit advice. I am confused on what a Trade Line is you referred to? My main concern is if I pay it off and have no payments to help rebuild credit history, and something bad happens and I need to finance a car in a year or so, that I won't have any credit lines to help re-establish credit. I am hoping by the time I need a new car I will have enough in savings to pay cash if I had to. I have my emergency fund and a savings account that would be close to zero'd out if i pay the car off right now.

[Logan]

Logan, thank you for the advice on making payments on the credit cards once the statement posts. They are both high interest credit cards 23% and 26%, If I wait until they post the statement will I get an interest charge?

Amy, thank you for the credit advice. I am confused on what a Trade Line is you referred to? My main concern is if I pay it off and have no payments to help rebuild credit history, and something bad happens and I need to finance a car in a year or so, that I won't have any credit lines to help re-establish credit. I am hoping by the time I need a new car I will have enough in savings to pay cash if I had to. I have my emergency fund and a savings account that would be close to zero'd out if i pay the car off right now.

There is a grace period on credit cards. When the statement comes out interest shouldn't be charged until after the due date on your bill. Make sure you read the terms for your credit cards to see when interest accrues. I charge a few grand on my credit card, the statement comes out around the 5th of the month and I pay it in full on the 27th (due date) of the month. I could charge 10K on the 5th of April and not have to make a payment until May 27th with no interest charged as long as I pay it on time.

Logan

[Amy26]

Logan, thank you for the advice on making payments on the credit cards once the statement posts. They are both high interest credit cards 23% and 26%, If I wait until they post the statement will I get an interest charge?

Amy, thank you for the credit advice. I am confused on what a Trade Line is you referred to? My main concern is if I pay it off and have no payments to help rebuild credit history, and something bad happens and I need to finance a car in a year or so, that I won't have any credit lines to help re-establish credit. I am hoping by the time I need a new car I will have enough in savings to pay cash if I had to. I have my emergency fund and a savings account that would be close to zero'd out if i pay the car off right now.

A trade line is anything that reports on your credit file. Well, you said you have credit cards right? As long as you are using them and making your payments etc.. you are showing a payment history. As I said, installment loans (car loans, student loans) don't really affect the state of your credit score dramatically. If you have CC's and you are using them properly then you have trade lines to rebuild with.

If you'd be using your emergency fund to pay it off, then that's different as well. If possible, just save up for a few more months so you don't deplete your emergency fund.

Also, in rereading your post... I'm curious if your scores are really in "the 700's". Your not a year out of BK and (correct me if I'm wrong) it seems you only have 2 subprime cards and a car loan that are open on your report? Where did you get the credit scores from? If they are truely in the 700's then I'd say you're leaps ahead of most people a year out. All you need to do is keep paying your credit cards on time and keep showing a positive history. At some point, I'd try to get some cards that have larger limits...but other than that... you seem to be doing just fine and shouldn't worry about what paying off a car loan would do to your report. In my humble opinion of course.

[AtlBkAtty]

I should also have asked how much longer you have to pay on your vehicle but I ran a couple of scenarios. $4,000 at 9% for one year: you're paying almost $200 in interest. For two years: $385.

You're obviously disciplined enough to have saved the $4k to begin with, so if it were me I'd pay off the vehicle and take the same monthly payment you were spending on it and put that plus whatever you were putting to begin with into savings.

My opinion is it's better to build your credit without paying interest charges, and there's a lot of good advice here and on the rest of this site that will help you with that.

[Logan]

9% interest--to me that is a nO brained. Pay it off

[ScaredINMich]

We have about 8% on our truck loan

Edited to add:
It was a 5 year loan on about 12K, but we paid an extra $100 or more each month from the start. We have 6K left and about 3 years left.

[bbrooks123]

Thank you everyone for your advice. Amy I don't understand how my scores were that high either, they are actual scores though pulled from Experian, TU and Experian. I cleaned up my credit report the day I was discharged, took 4-6 months to finish that adventure.. I am a little neurotic, plus after the mess of credit card debt after the divorce and living on less than $40 a week (for gas and grocery's) for all those years while trying to pay off credit cards and getting no where. I am very motivated to do the right thing and move on with my life being fiscally responsible.

With everyone's advice I am going to pay the car off in July. If I continue to pay the payments like I do now of paying $800 a month on it I could pay it off and not totally wipe out my savings account.

AtlBkAtty I will do as you suggested and put the monthly payment that I make now into the savings account once the car is paid off, for probably the 1st year then max out my 401k contributions. I lost 4-5 years being in debt and am behind the curve as far as saving for retirement.

What I learned the most through my BK is you can make it through almost anything and items you think you need, you really don't have to have "things" to survive. Financial security and piece of mind that if you have to go to the doctors you don't have to panic and try to figure out where you will get the copay is way more valuable then an item. My life has completely changed since a year ago. I wish everyone here the best of luck.