How much did my credit score change?

Question

I checked my score a few months ago with Equifax and the report showed it to be 737. Earlier this month I consolidated an $18000 loan at 29% and $620/month payments into a $20000 loan at 11.5% and $519/month payments. How might this have impacted my credit score?

I'm curious because I'm about to apply for auto loan financing and they have requested my Driver's License, SIN number (Canada), and a deposit to see what they can do for the initial approval. The car is $35,000. How likely is it that I would be approved?

Thanks.

Answer 1

The ironic thing is sometimes paying off a loan can actually lower your score because your ratios can change dramatically.

Your score is likely to drop because you've increased the debt from 18K to 20K even though it's at a lower interest rate (rates don't count).

That's a pretty good debt you already have going and unless you are very well paid, I'd hold off on applying for anything else until a minimum of 6 months of perfect payment history on your existing loan has passed.

You're looking at potential debt of $55,000...do you really want to do that? Cars depreciate....save your money and buy cash or something cheaper.

Answer 2

They will most likely want to verify your income to make sure you have the capability of paying back the loan and that may count just as much as your score.  Consolidating the loan can hurt your credit score in multiple ways.  One is that it often takes into consideration your debt:available credit ratio.  It is better to have say $20,000 debt on a credit line of $40,000 than to have $20k debt on a $20k credit line.  They also consider how long your accounts have been open and having recently opened loans/accounts can drop your score, although one new account shouldn't drop it much.  Although, it won't affect your score, the new loan may help if they look at your total monthly obligations since the new loan payment is lower.  Also, it could take a few months for your credit report to show the old loan paid off and there could be a period of time when both the old and new loan show balances owed on the report which could lower your score.  737 is pretty good and I don't think the new loan would drop it enough to prevent the purchase of a car but it may fluctuate up and down some over the next few months due to the activity on your credit report.  You can always order a credit score from one of the bureaus or other companies that offer that service if you want to know before applying for a new loan.