@nathan wrote:
Unfortunately, fico does not really care about auto loans unless you default on the the loan. People have actually seen their score drop after paying off an auto loan. Why fico doesn't reward you for paying your auto loan remains a mistery to me.
They go by statistical correlations. I am not familiar with the details of FICO's modeling, but am somewhat conversant with the general algorithms employed because I do a lot of data mining in my own work as a pharmaceutical researcher. What they basically do is gather all the data parameters they may legally use under various anti-discrimination laws on a sample of individuals and try a number of algorithms to build a statistical model to predict who is most at risk of becoming a problem to creditors in the near future. The better their scores are at predicting who will default, the happier their primary customers -- companies making credit decisions -- will be.
The type of debt that has the biggest impact on FICO scores is credit card debt, because that is the type of debt that has the strongest statistical relationship to the future behavior of the borrower. Its terms are extremely flexible so each month the borrower may choose to pay any amount from the minimum payment up to the full balance, and therefore it's an extremely sensitive index of how the borrower handles money (if you run out of money before you run out of month, you may choose to pay less on the credit cards but not on most other bills). With installment loans such as automobiles, the benefit to the FICO score of paying on time is lower because the borrower has less flexibility -- but the penalty for failing to pay is severe. Also, the FICO people know even if a borrower has trouble meeting other obligations he or she will likely try extremely hard to avoid having the car get repossessed, which is another reason why paying a car loan yields little or no benefit on the score, but failure to pay has a severe price.
I believe having a mortgage does have a positive impact on FICO scores, not so much based on the dollar amount as on the fact that a mortgage means (or at least SHOULD mean) that some underwriter has evaluated the borrower's finances with some care and decided they were a good risk for a big long-term loan.
TU 791 02/11/2013, EQ 800 1/29/2011 , EX Plus FAKO 812, EX Vantage Score 955 3/19/2010 wife's EQ 9/23/2009 803
EX always was my highest when we could pull all three
Always remember: big print giveth, small print taketh away
If you dunno what tanstaafl means you must Google it
