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Buying an Odyssey and credit scores, and house!

2K views 11 replies 8 participants last post by  2015WDP 
#1 ·
Any good financial people in here? I was just trying to roughly plan out some things here. I currently have a car with a loan that I am now able to pay off. I was actually able to pay that off sooner but kept the loan to "build up" my credit score, to get different types of credit on my record. My current score is 770.

Our other car is a 2 door car, and we have a kid now so this is not cutting it anymore! We have way too much luggage and people visiting. We want to buy an Odyssey in the next 3-4 months, and would get a loan, and I think I can put down 50% on the car. Should I go ahead and pay off the loan now on my other car if I'm able to?

At the same time, I am saving money for a down payment on a house and have almost reached my goal. Ideally, I wouldn't buy an Odyssey until after the house, but I cannot even say when we would get the house. We are looking for new construction in Cary, NC and neighborhoods are not ready yet.

Does anyone have an idea or been in this situation of paying off auto loans and getting new ones, on what effect it would have on my credit score? No late payments or other marks on my credit score. I'm just concerned about having the best credit score possible for a mortgage these days I guess.
 
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#2 ·
If you can comfortably afford to pay it off it can help your credit score since you'll have less debt (of the installment payment variety). This is one component of credit scores. However, the other component is how long you have credit open for - so paying it off early can also have a negative impact on your credit in the long term.

Remember that you need to look at income vs debt as a ratio% and the TYPE of debts you have. If you are saving for a house, keep in mind you are going to need money for things like property taxes, utilities, repairs, upgrades, insurance etc. Plus lots of unforeseen expenses (flood, theft, vandalism).

My advice - keep the cash in bank and continue to pay for your car. If needed, use the cash to put down on the Odyssey so it will help you with the payment.
 
#3 ·
General rule of thumb is buy house then car, but if you are still a couple of years away then no big deal.

While 770 is nothing to sneeze at for a credit score, 800+ is certainly achievable. It is more than just paying existing accounts "as agreed". Total amount of available credit and % of credit used also play a big part. And while closing an existing account can ding your score a bit, closing inactive accounts with high credit limits can help more than hurt. If you have multiple high credit line revolving accounts consider closing those that are not needed or requesting that the issuer reduce your credit limit as long as that does not cause your balance to become more than 50% of the available credit line.

As for paying off the existing car loan, if you have had it for more than 2 years then go ahead. You won't gain any more on your credit score by keeping the loan. While debt to income is a factor for qualifying for a loan, it is not used to determine a credit score, so paying it off will not improve your score. Putting 50% down on a new car is great, unless that causes you to come up short on the house down payment. If you borrow more than 80% of a home purchase you will be subject to private mortgage insurance(PMI) and that is painful to pay and difficult to get removed as you are no longer required to carry it once the loan balance drops below 80% of the market value, but with values ever changing knowing exactly when that happens is a mystery and you may be on the hook for an appraisal in order to get it dropped.

One more thing, get your free credit score from all 3 credit bureau's. Experian, Equifax, and Trans Union. Get them straight from those sources and skip "free" reports like Credit Karma as they are notoriously inaccurate. Review all of your accounts and check for inaccuracies. Especially late or missed payments, charge offs, and collections. You will notice the occasional missed reporting month from any number of creditors, but those are no big deal as long as it is not marked as missed or late incorrectly. If there are any glaring errors get challenge them and get them fixed/removed. Good luck!
 
#4 ·
If you're shopping for a house in the near future, I suggest you buy a good-enough used Odyssey with some of your cash. Save the rest of your cash, and available credit, for the house. Making payments on a depreciating asset, cars in particular, is almost never financially smart. When they are offering a car loan for a lower interest rate than you get from your savings account, and you can pay the loan off in the time period that they specify, then the loan will leave you with more money at the end. However, if you can find a good-enough used car that is sufficiently inexpensive that you feel comfortable without comprehensive and collision insurance, that will almost certainly be better for your bank account than even a 0% loan.

Mike
 
#5 ·
Thanks guys, all good replies. Our Odyssey, I have definitely calculated all the other expenses in owning a home such as property taxes, insurance, maintenance, etc.

There are just so many different opinions on what to do, as far as how long to keep a car loan for to increase credit scores and when to pay it off. I definitely don't like having this current car loan, and I've had it for 1 year and 4 months -and so itching to just pay it off and be done with it!

slowmachine, I would like to buy a used Odyssey with cash and not use up my credit, but minivans tend to be used "roughly" and all the ones I've seen are well-worn. Makes me thing how they were driven and how the "mechanicals" are doing.
 
#7 ·
I would like to buy a used Odyssey with cash and not use up my credit, but minivans tend to be used "roughly" and all the ones I've seen are well-worn. Makes me thing how they were driven and how the "mechanicals" are doing.
I see 64 2005+ Odysseys on raleigh.craigslist.org for under $10,000. Those would be my target. Only you can decide how to prioritize your spending, but I would encourage anyone in your position to minimize auto expenses. Well-worn does not mean worn out. These vans can withstand a lot more abuse than many give them credit for.

A CarFax subscription is a valuable tool while shopping for used cars. If you can find one that shows a long history of maintenance, especially at a Honda dealer (as I did) you can buy with reasonable confidence. At this price level, you're not going to get a certified used car. You have to accept some risk that your are making a mistake and the car will explode before you begin saving money. I figure that if you can afford the loan payments on a new or newer van, that will still be a backup option if your older van fails. The more likely scenario is that you will have some initial maintenance expenses (like new tires and fluid changes) and then good service with no payments for several years. My local Honda dealer will run any car through the same reconditioning process that they use for cars to be sold on their retail lot. The only thing missing, at that point, would be a (very) limited warranty. Your patience and persistence in researching each potential purchase IS the warranty.
 
#6 ·
If you are concerned with buying used - consider a CPO Honda from a Honda dealer. They are a lot stricter with the CPO standards at a franchise dealer than a used car lot. Also consider that there is a warranty to be had from the manufacturer - again much better than a non-franchise dealers warranty which is usually not worth the paper its written on. That's what we did - and while it was technically 'more' than what a non-franchise dealer was charging, we got a preferred rate plus a Honda warranty. Car is literally almost like new. Got to see the full service history and Carproof etc. Worth the extra cash for peace of mind in my opinion.
 
#8 · (Edited)
Making payments on a depreciating asset, cars in particular, is almost never financially smart.
100% agree with the above. Very sensible advice. I don't necessarily agree that Ody's are always used "roughly" but rather they are used to transport kids and often times pets! Those two things are a destructive force! lol However, exteriors can be cleaned, polished, and restored. Interiors can be detailed to look like new. Small things can be fixed by the owner, dealer, or local trusted mechanic. It's a matter of priorities, Do you want a shiny new Ody and big payments (with things that can still go wrong) or a shiny used and well maintained Ody with only some payments here and there for repairs? As slowmachine said, only you can decide.
 
#9 ·
A borrower with a 770 credit score is already eligible for some of the best loan rates. I would say to just keep on the path that you're on. I understand the need for a transition from sedan to "family hauler" but with one child, I think you could probably hold out a little longer. Just gotta get creative in how/what you pack (p.s. roof cargo boxes free up trunk space nicely). Not sure how old your child is, but from experience, kid's "stuff" gets a little easier to haul around as they get older (if you have a second or third child though, all bets are off). As for too many people visiting, I would look into renting something for those times that you really need more space, if that's an option for you. Maybe by the time you REALLY get sick of trying to cram everything into your 2 door car, you will have purchased your home and can redirect attention to getting an Ody.
 
#10 ·
Just to make all you Americans get really confused - up here in Canada, credit scores are not as easily accessible and we do not have tiered interest rates. So if there is a 0% rate advertised, whether I have a 660 or 770 score, we can both get the 0%. The difference is that if you have a lower score, you may have to put money down, get a co-buyer, proof of income, maybe all of the above. But you still get the 0% rate. That's the Canadian way - at least for anyone without major write-offs and stuff. Anyone with really really bad credit would still have to go to a sub-prime company and then the rates are tiered
 
#11 ·
I just paid off my home about 5 years early. My CR jumped from the mid 700s to close to the top of the 850 max possible.

I was able to get a 1.99% on used 2011 EX just off lease with extremely low mileage. Was going to use my credit union (Pen Fed which has very low rates), but the dealer found a local bank which offered the 1.99%APR. That was for 36 months.
 
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