Examples of credit being "too good" for something?

[Anonymous]

My overall credit limits were many times greater than his though.  Mine were nearing twice my income where his were probably half his income.  You'd think based on that if either of us were to be approved for CLIs it would be him first based on far less exposure.

[Anonymous]

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@Anonymous wrote:

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Hey BBS!  That sounds plausible, but there can be frequent exceptions.  Here's just one example.  Bob opens a credit card.  He then opens an account every other year for 16 years.  These accounts are 36-month car loans, an occasional CC with a signup bonus (which he then closes to avoid the annual fee), a personal loan, finance company accounts, and finally a mortgage at year 16.  Then he opens a few more credit cards at year 16 and closes his first one.  At year 26 his old CC account falls off and his AoOA falls from 26 to 10. 

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Very true.  I was thinking more my own perspective of opening a CC every couple of years and not closing any.  You're correct that there are plenty of other account types though such as loans that will close, as well as people closing CCs on their own over time. 

[Anonymous]

More great info! If an installment loan is paid off early, will FICO cease to count it in credit mix? I have a 5 year car loan taken out a year ago that is already 65% paid off. At this rate I can fully pay it off by end of 2017. If FICO will stop counting it as mix of credit, then it might not be wise to pay it off early? Or does it still count as a credit mix for 10 years post account closure?

In 2010, I was a couple years past paying off my immense debt (over $60k). Utilization went from something like 75% to less than 1%. My FICO scores did jump sigificantly after paying off debt in 2008 but flatlined around 730 for 2 years afterwards despite making regular PIF's on all cards. When I leased a new car in 2010, my score surged shortly afterwards to around 790, obviously because I now had an installment loan whereas before my credit profile only contained revolving card accounts. This was my first installment loan in over 15 years. From my experience, my 2 biggest score boosts were 60 points each; paying off lots of debt (jump from 670 to 730), and from 730 to 790 when I took on an installment loan. I subsequently took on 2 simultaneous new car leases in '12 and '13, plus my oldest card account aged 18 years which boosted me well into the 800's. Another year later, I hit 850 for the first time. 

[sarge12]

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@Anonymous wrote:

More great info! If an installment loan is paid off early, will FICO cease to count it in credit mix? I have a 5 year car loan taken out a year ago that is already 65% paid off. At this rate I can fully pay it off by end of 2017. If FICO will stop counting it as mix of credit, then it might not be wise to pay it off early? Or does it still count as a credit mix for 10 years post account closure?

In 2010, I was a couple years past paying off my immense debt (over $60k). Utilization went from something like 75% to less than 1%. My FICO scores did jump sigificantly after paying off debt in 2008 but flatlined around 730 for 2 years afterwards despite making regular PIF's on all cards. When I leased a new car in 2010, my score surged shortly afterwards to around 790, obviously because I now had an installment loan whereas before my credit profile only contained revolving card accounts. This was my first installment loan in over 15 years. From my experience, my 2 biggest score boosts were 60 points each; paying off lots of debt (jump from 670 to 730), and from 730 to 790 when I took on an installment loan. I subsequently took on 2 simultaneous new car leases in '12 and '13, plus my oldest card account aged 18 years which boosted me well into the 800's. Another year later, I hit 850 for the first time. 

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To my understanding it would still count in AAoA, but does not count like having an active installment loan in your credit mix, so a score drop usually happens when you pay off an installment loan, if it the only installment loan. There is also a utilization factor on installment loans, with original balance/current balance used, but it is not as important a factor as revolving utilization.

[Anonymous]

sarge is correct above.  Installment loans only positively impact "credit mix" if they are open.  Once closed, unless another open installment loan is present, your scores will see a typical drop of around 30-35 points.  The best thing to do is employ the SSL technique about 2 months before you plan on paying off your final installment loan.  This way before the paid off loan reports as closed, the SSL loan will report as open and significantly paid down (just like the loan you just closed) so you won't see any scoring change at all.  I'd suggest going down this route rather than unnecessarily keeping your auto loan open longer and paying more interest just for the sake of FICO scoring.

[Anonymous]

Having (a) open installment debt that is (b) mostly paid off helps you out in two different ways.

The presence of an installment loan helps you in the Credit Mix sector of your FICO 8 score.  The fact that the loan is open and yet almost entirely paid off help you out with a factor called Installment Utilization (also called Balance-Loan Ratio).  The factor belongs to the larger scoring group of FICO 8 called Amounts Owed.

So there's no question that paying off all open installment debt will harm one's FICO 8 score, since you will then no longer have a positive but very low Installment Utilization.  (Likewise if you were to pay off and close all your open revolving accounts, it would no longer be possible to have a positive but very low CC utilization -- which would also hurt you in the Amounts Owed category.)

Whether the Credit Mix mix benefit (viewed solely by itself) is helped equally by a closed or an open installment account is not clear to me.  I suspect that you get some advantage for it being open but I can't be sure.  That could be easily tested by a person who had a closed installment loan on his report implementing the SS loan technique, but not paying the SS loan down immediately.  If he left the loan at 100% and got a scoring boost, then it would seem to prove that the CM portion is better met by an open loan rather than a closed.

Again, it's a bit of an abstruse point, since without a doubt the open loan gives you a sharp benefit to Installment Utilization.

If you want to pay off the auto loan but also want to protect your FICO 8 score from taking a hit, then just implement the SS loan technique before you pay off the car loan.

[Anonymous]

Car loan rate is pretty low (2.69%) but nevertheles it was approximately $1900 in interest for the duration of the loan which is why I'm paying it down fast. I'm reading CreditGuyinDixie's thread on SSL teqnique w/Alliant, looks like I'll be doing that towards the end of this year to keep my FICO juiced. 

[Anonymous]

BrutalBodyShots you nailed it ... my credit score took a nose dive once my installment loan was paid off and it was about 30 points OUCH!

[Anonymous]

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@Anonymous wrote:
BrutalBodyShots you nailed it ... my credit score took a nose dive once my installment loan was paid off and it was about 30 points OUCH!

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Yeah, it's never fun seeing that score hit.  Did you employ the SSL technique or open another installment loan after it was paid off?

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:
BrutalBodyShots you nailed it ... my credit score took a nose dive once my installment loan was paid off and it was about 30 points OUCH!

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Yeah, it's never fun seeing that score hit.  Did you employ the SSL technique or open another installment loan after it was paid off?

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Ended up needing a replacement vehicle so I obtained an auto loan for 1.9% and my score almost came back to the former level (not quite - makes you wonder). Oh yeah, forgot the hit for the loan inquiry and new account.