Loan Consolidation Impact on Fico

[atd1970]

Just wanted to provide some data points on the impact of Federal Student Loan Consolidation.

I had 5 student loans, totally $109,000. I decided to consolidate because I am taking advantage of Loan Forgiveness. The consolidation process was completed on 1/22/2016, and all accounts reported as closed on 2/3/2016. All of my Fico scores dropped 13 points (new scores EX 750, EQ 750, TU 773).

FedLoan has yet to report the new account, so, the only open installment loan is an auto loan.

I am guessing my scores will increase when FedLoan reports. However, I am thinking of taking a small personal loan from my CU to improve my account mix (going to be mortgage shopping in 6 months).

I will update new Fico scores when FedLoan reports. My AAoA should not be a factor because I was rebuilding, and most of my accounts were opened within the last 3 years. Oldest accounts 6.8 years (student loans), AAoA 1.5 years ( 50 new accounts within the last 3 years).

[SCF]

If you're planning on buying a home in the next 6 months I would not get another installment loan and drop your AAoA further, even if the impact is minimal.  You also probably don't want the additional payment's effect on your DTI ratio.  Once your new consolidation loan reports and you have 6 months of payment history, you should be in good shape.  Your scores are already quite good, getting your mid-score to 760 should qualify you for the best rates, and that is likely to happen naturally over the next 6 months if you keep your revolving utilization low and make your payments on-time.

[Anonymous]

My timeline is the same as yours. My Vantage dropped 35pts, they do not factor closed accounts into AaoA. I freaked out when I saw the drop but aftwr reading up ot looks like FICO does factor closed in AAOA. Is it possible you might have a drop based on the new loan balance ratio? Your new loan is at 100%. It should improve as you make payments and reduce loan balance ratio.

[Revelate]

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@Anonymous wrote:
My timeline is the same as yours. My Vantage dropped 35pts, they do not factor closed accounts into AaoA. I freaked out when I saw the drop but aftwr reading up ot looks like FICO does factor closed in AAOA. Is it possible you might have a drop based on the new loan balance ratio? Your new loan is at 100%. It should improve as you make payments and reduce loan balance ratio.

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Late reply however:

Vantage does factor closed accounts, Credit Karma does not instead peddling Average Age of Open Accounts.  I know it's common to mistake the two but VS does count everything and it's just CK's interface which does not.  You can find other VS peddlers who do AAOA correctly.  Maybe the old Transunion New Accounts score did AAOOA but who cares about that as it's effectively not used and doesn't track any other mainline algorithm seemingly.

You hit the nail on the head though with the likely new loan balance ratio if we're talking FICO 8 scores, same thing happened to me with a mortgage and there's no way for me to recover that short of kicking an inordinate amount of cash to it (uhhh, no) and the report of the new consolidated account likely will either be no change (other than AAOA reduction) or a possible loss in scoring if it skews the installment ratio even further.