spanky

Due to divorce issues, my credit rating has suffered substantially. I'm currently in the process of rebuilding but I need some advise.

I just bought a "new" used car and got an abysmal 15% interest rate. next week I'm selling my mom's house that i inherited and will be able to pay off the car in full but I need to know if it's better on my credit to pay it in full, to pay much larger monthly payments (2k-2500) or to pay the normal monthly? The interest rate is so high that I know if I pay it the regular monthly payment for the full term I'll be paying MUCH more than i'd like in interest so I need a happy medium between bettering my credit and not paying the full value of the interest over the term of the loan.

white_n_slow

It will show on your credit report as "paid and closed" in good standing, so you might as well liberate yourself and pay the fucker off. You may have a *slight* credit advantage by paying over time, but nothing that will compare to the money you're throwing down the toilet at 15%. To put it another way, the fact that you got a loan and paid it off quickly is a plus for your credit history. If you paid it off a little slower it *could* be a little more of a plus, but not much.

FWIW, I have a ~810 credit rating and I have never let any debt go full term, including mortgage, cars, CC, etc.

:edit: only reason I can see not to pay it off is if you have some better use for the money, like a business investment or something.

Dweezel

The key to good credit, is to do what makes sense. Paying 15% interest on a car when you can pay it off, does not make sense. I would pay it off, get a credit card, and pay the balance every month to build credit.

Nightshade

Pay it off and as Dweezel said get a CC to use for regular small purchases through the month.

A friend of mine while still in HS got a CC that he would use to buy gas with once a week, at the end of the month he would pay it off and once in a while he would let it slip for a month then pay it off. He ended up with a crazy high credit score doing this by the time he graduated, basically letting it run into the next month once ina while shows creditors that you are willing to pay interest which they like because it makes them more money.

Not sure it still works that way, I don't do credit for anything just sharing what I have seen work.

Draconius

The largest impact on your credit rating is your DTI (Debt To Income) ration. Most lenders will look at that more often than you credit rating at times. Your payment history is a second impact. Doesn't matter whether you paid in full, or paid over time. Once you get a delinquency on your CR...that makes it hard to bounce back. Age of debt is generally the third. You JUST got that loan...paying it off and CLOSING that bish will not have an impact. Keep your oldest CC open and pay minimum and not miss a payment.

LABARINTH

I read somewhere that it is better for you overall credit if you use and pay off a very small portion of your total credit. So if you have one credit card with a low limit (say $1,000) and you put $500 on it every month and pay it off you are using 50% of your credit every month. But if you have 2 credit cards each with a $5,000 credit limit, one for emergencies that is never used, and put the same $500 on the other every month than you are only using 5% of you total credit. Apparently the second scenario is much better for your overall credit. I have a second credit card that I never use and I was about to cancel it until I read this. I know this has nothing to do with the car but it is just some food for thought as you try to rebuild.

spanky

I did get a secured credit card through capital one and i do plan on paying all but a small portion ($10-20) every month to try to help build things that way as well.

Nightshade

Never cancel a credit card, it negatively impacts your credit score. Cut it up or lock it in your safe just in case but do not cancel it unless you are ok with taking that hit.
Not sure how much impact it has but I have seen this come up in multiple credit discussions with details to back it up.

DarkStarr

Iirc vehicle loans don't have a huge impact in credit recovery. Graduate your secured to an unsecured, keep utilization low, and allow it to age.

Dweezel

You are better off paying the full balance every month. Most places that run your credit (car dealers, mortgage, etc) will review the full report and not just the score. It's much easier to explain paying a balance off in full opposed to leaving a small balance every month.

Ive been in banking my whole career, and these are my general tips for building credit:
- Pay your bill off every month
- Use a maximum of 30% of your total credit available
- Maintain two CCs; one for daily use paid off every month and one for emergencies that could be paid over time. The card with the lower rate should be the emergency card as interest rate doesn't matter when you pay in full.
- Don't cancel the card with the longest credit history.