Paying off loans - effect on credit score

wheely1967

Hi

I have two loans. One 10k one 7k. I plan to pay off the 7k one and then reschedule the 10.5k at a lower rate. I've built my credit rating to Excellent with Experian and via MSE and Good with TransUnion via Creditkarma

Next year I plan to take out a car on lease.

I're read that paying off a loan can affect my credit rating, especially if I pay off the smaller loan.

Any advice bearing in mind I want to take out a car lease next year.

Like rugby scrums - sussing out credit criteria seems a black art.

Thanks in advance.

Neil

Ebe_Scrooge

Paying off the loan will result in your score dropping - the score drops in response to any change in your credit circumstances, whether good or bad.  But since your score is not used - not even seen - by any lender, that matters not one jot.  A reduction in your overall debt will be viewed positively by a lender, you can safely ignore whatever view the CRA has of you - after all, they're not the ones lending the money

wheely1967 said:

and then reschedule the 10.5k at a lower rate.

Do you mean by this that you intend to take out a new loan at a lower rate, then use that to repay the old loan?  If so, there's one thing you need to bear in mind.  A lender has to take the view that the new loan will be in addition to, not instead of, your existing loan.  They cannot guarantee that you will indeed repay the old loan - there's nothing to stop you blowing the whole lot on a holiday or taking a punt on the 3:30 at Cheltenham.  So when they do their affordability checks, you may find that the rate you're offered is substantially higher than the advertised "representative" rate.  There's nothing lost by making an application and seeing what you're offered - but don't bank on being able to get a new loan at a lower rate.

Dave_5150

My MSE credit club score dropped from 999 to 979 when I cleared my mortgage early and my affordability scores increased. Around 4 months later my scored returned to 999.

As others have said it isn't of any real signficance though as lenders don't see or use your score to make their decisions. 

Ebe_Scrooge

Dave_5150 said:

My MSE credit club score dropped from 999 to 979 when I cleared my mortgage early and my affordability scores increased. Around 4 months later my scored returned to 999.

As others have said it isn't of any real signficance is of no significance whatsoever though as lenders don't see or use your score to make their decisions. 

Fixed that for you

Yep, like I say, the score drops in response to any change in your credit circumstances - and gradually rises over a period of stability.  It's just a marketing gimmick, nothing more.

horsewithnoname

Ebe_Scrooge said:

Dave_5150 said:

My MSE credit club score dropped from 999 to 979 when I cleared my mortgage early and my affordability scores increased. Around 4 months later my scored returned to 999.

As others have said it isn't of any real signficance is of no significance whatsoever though as lenders don't see or use your score to make their decisions. 

Fixed that for you

Yep, like I say, the score drops in response to any change in your credit circumstances - and gradually rises over a period of stability.  It's just a marketing gimmick, nothing more.

Sometimes it rises! Sometimes it falls/rises when nothing has changed. 

The score is a made up number. It’s your history that matters, and paying off a loan is good for your credit history.