Can't win for losing.....

[jamie123]

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@SouthJamaica wrote:

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@Thomas_Thumb wrote:

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@pipeguy wrote:

My car loan 72 month Ally Bank, I paid off $14,485 on an original amount of $24100

DW's loan DCU was $16000 as (bought the car 12.31.14), balance currently $12,100 - note this is a 60 month, 1.49% simple interest loan, I'm in no hurry to pay it off quickly.

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Thank's for the data.

Looks like your AG balance to loan was 66.3% before the payoff and has now gone up to 75.6% after the payoff. Could a score drop relate to crossing back above a 70% balance to loan threshold? Your data and CAPTOOL's support a possible 70% threshold.

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Yes but isn't there really a much simpler explanation?

It just seems to me that paying off a loan always results in a point drop. In my case, with my little reindeer loan, I lost 25 and 29 points by going from a $78 balance to a zero balance, despite the fact that my instalment loan aggregate utilization went from 15% to 0%.

I don't know why Fair Isaac hasn't figured out that paying off a loan is a good thing.

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Can you imagine just how unfair the credit scoring system is?

Most people would think that by paying off their loans and paying down their credit cards to $0 would get them the best scores. Can you imagine how many people knock their scores down this way BEFORE applying for an auto loan or mortgage? Imagine how much extra money the financial institutions in the USA make every year because people do this and lower their scores enough to be able to be charged higher interest rates on the next loan.

Fair Isaac has it figured out pretty well. Their customers are financial institutions and NOT consumers.

[Thomas_Thumb]

Fiar Isaac is a for profit corporation. They cater to businesses/banks but, they also want your money through credit monitoring services and/or one time report purchases. A whole industry has developed for consumer credit monitoring - and now you see silly commercials on throwing in "extras" when shopping for a car just because you have a high credit score.

Perhaps you can get lower loan rates due to high Fico scores - but reduced purchase price or heated leather seats thrown in just because of score - that's Alice in Wonderland territory.

As the Queen of Hearts (Fair Isaac) says: All ways are my ways

[Aahz]

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jamie123 wrote: 

Most people would think that by paying off their loans and paying down their credit cards to $0 would get them the best scores.

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Most people don't have access to decades of financial history for hundreds of thousands of consumers.  FICO does.  That history has shown them that people with active car loans and/or mortgages are more likely to pay their bills then people without such loans.

It's not about "fair" or how much money can be earned by banks or will be paid by consumers.  It's about determining the risk of a specific consumer defaulting by looking at billions or trillions of historical data points from other consumers.

[StartingOver10]

^^^I understand your point. 

However, IMO the CRA's skew the data by dropping off paid accounts after 10 years.  I understand that the potentional reason for dropping history is to save space for more recent accounts (???) and to focus on the last 10 years rather than the entire credit life of an individual as it is more relevant.  Probably reason two is more important than reason one. But wouldn't more data give a more complete credit profile?

As an example if the CRA has 40 year history of an individual with 50+ TL's paid on time and paid in full tradelines both revolving and installment with the exception of  the period of 2008 to 2009 you are going to know that there was a significant financial event during that time period. That paints an entirely different credit profile than showing the last 10 years of that same individual.   However, it does allow the financial institution to charge more interest to this individual with the shorter 10 year history showing because they are higher risk according to the very arbitrary 10 year cut off dates.  

Make no mistake, as pointed out above, the CRA's clients are the financial institutions and that is who they serve.  This newly exploited consumer revenue streams generated by charging for educational scores not relevant to financial institutions as well as relevant scores is a huge bonus to the CRA's but we are not their clients.  

If the consumer were the CRAs' clients would there be as many errors? Who knows.  Maybe the entire system needs an overhaul with the goal to provide accurate data for a longer time period so an accurate financial profile can emerge. 

[Aahz]

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@StartingOver10 wrote:

But wouldn't more data give a more complete credit profile?

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Absolutely, more data would give a more complete credit profile.  However, this same argument can be made for credit reports never dropping negative information as well.  Afterall, simple logic would dictate that someone with a 40 year perfect record would be a safer risk than someone who had credit problems eight years ago, right?  Yet we never see consumers hoping negative TLs will last longer than 7 years.

The idea that the 10 year limit has anything to do with storage space, is patently ludicrous. There are people with hundreds of active tradelines on their reports and the databases seem to handle them just fine.  The typical American consumer is unlikely to have more than 50 TLs over their entire lifetime.  Additionally, there has been plenty of evidence that the credit bureuas actually retain all information that has ever been reported to them.  It's only the last 7/10 years of data that is put into a report.  And there are 3 exceptions to the 7 year law that allow negative information from much older to be reported, as well.

Which leaves us the question of why 10 years, specifically.  I don't have that answer.  But I believe that 10 year old behavior is of far less value in predicting a person's future behavior.  And remember, regardless of who FICO's customer is, that is the purpose of a FICO score - to determine the risk of a specific consumer defaulting on future debt obligations.  It is not to give a "more complete" profile.

[pipeguy]

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@pipeguy wrote:

Paid off my current car note (at 31 months on a 72 month loan) mainly because I'll be getting a new car (loan preapproved by DCU) and I'm underwater on the old one because of high mileage (91k in less than 3 years).  Note that I still have another car loan through DCU on the DW's car thats just over a year old. 

Equifax score lost 11 points, Experian lost 3 (nothing from TU yet) - my EQ score was my highest and my EX score is my lowest because they continue to incorrectly list an equity loan as foreclosed, when it never was (it was converted into a set payment, set interest rate, second mortgage) - I've disputed it over and over and short of suing them, I just live with it.

My scores were and are in the mid-700's so I can afford the lost points, but I find it kinda strange that 2 installment loans score higher than having an installment loan in the mix which would be my other car loan. I sill have revolving (lots of accounts, under 3% utility), a first and second mortgage and an installment loan (car note), but somehow TWO car notes are better for scoring even though installment utility would be much higher and over all debt would be higher.

Update TU - 7 points

Go figure 

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Just to update the data in this tread, TU not only recovered but jumped up to 783, EQ recovered mostly to 761 and EX is stuck in their incorrect loop of reporting 737 (not related to the installment loan pay off).

I purchased a new car on 2.9.16 with a new preapproved installment loan of $29,815 so we'll see how that reports by the end of the month as a replacement second installment loan. .