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andyaycw
Posts: 298
Registered: ‎07-25-2007
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FICO Scoring and Paying Down an installment Loan

I've heard before that the FICO Scoring Model does not particularly like large payments, and that it is best to slowly and incrementally pay down a loan in order to maximize your score. Is this true?

I have a student loan in the amount of $2600. The payment on this has been deferred until after I graduate, but I have been thinking of paying down some (or all) of it in the next 3-12 months to see how much I can raise my FICO score, despite my extremely short credit history.

What steps/payment amounts should I make in order to maximize my FICO score if I plan to completely pay off this loan in the next 12 months?

Starting Score: EQ 773, TU 766
Current Score: EX 794, EQ 787, TU 776
Goal Score: 800


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fused
Posts: 16,374
Registered: ‎03-12-2007
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Re: FICO Scoring and Paying Down an installment Loan



andyaycw wrote:
I've heard before that the FICO Scoring Model does not particularly like large payments, and that it is best to slowly and incrementally pay down a loan in order to maximize your score. Is this true?

I have a student loan in the amount of $2600. The payment on this has been deferred until after I graduate, but I have been thinking of paying down some (or all) of it in the next 3-12 months to see how much I can raise my FICO score, despite my extremely short credit history.

What steps/payment amounts should I make in order to maximize my FICO score if I plan to completely pay off this loan in the next 12 months?

Installment (auto, student, personal) loans are a bit tricky. Everyone seems to have different results when paying them down or paying them off early. IMHO, if you can afford to pay more than the required monthly then do so. Once paid off it's unlikely you will see any big increase in your scores. Do you know your FICO scores? Do you have any credit cards?
Credit Profile -
FICO 08 Scores (09-16-2014): EQ 824, EX 817, TU 822
All three scores were 850. Lost points for not having an open installment TL. So, BE WARNED!!!!!
Credit History: 26+ years ~ AAoA: 12 years ~ Util: 1% ~ Inqs: EX 1 (Amex 07-15-2014)

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andyaycw
Posts: 298
Registered: ‎07-25-2007
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Re: FICO Scoring and Paying Down an installment Loan

[ Edited ]
I currently have three credit cards. Two cards with Citi (opened in 8/2006) and a new account I just opened with Amex just several weeks ago which is not yet reporting to the CRAs. Once it does, however, I do expect my FICO scores to go down a bit due to the change in average age of my accounts. However, my current FICO scores are: TU 719, EQ 738, EX 735.

These are the only accounts that are on my credit reports: the two cards I have with Citi opened in 8/2006 (soon to be three after Amex starts reporting) and my Student Loan which was opened at a later date. I was just hoping to see how high I could get my credit score as I want to get up to the 760+ range as soon as I can.

My TU report lists as one of the negative factors that the balance remaining on my non-mortgage accounts is too high (The $2600 student loan + my revolving account balances.) Additionally, I have paid off 0% of that loan. It states that most FICO High Score Achievers have paid down on average 35% of the original amount of the loan, in addition to the fact that on average they usually owe less than $1200 on their non-mortgage accounts. I just have that feeling that the TU scoring algorithm is more sensitive to my Student Loan as opposed to EQ and EX. I'm hoping that if I can pay off the student loan, I can gain an extra 5-10 points, if not more.

Message Edited by andyaycw on 08-16-2007 11:47 AM

Starting Score: EQ 773, TU 766
Current Score: EX 794, EQ 787, TU 776
Goal Score: 800


Take the FICO Fitness Challenge
Moderator Emeritus
fused
Posts: 16,374
Registered: ‎03-12-2007
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Re: FICO Scoring and Paying Down an installment Loan



andyaycw wrote:
I currently have three credit cards. Two cards with Citi (opened in 8/2006) and a new account I just opened with Amex just several weeks ago which is not yet reporting to the CRAs. Once it does, however, I do expect my FICO scores to go down a bit due to the change in average age of my accounts. However, my current FICO scores are: TU 719, EQ 738, EX 735.

These are the only accounts that are on my credit reports: the two cards I have with Citi opened in 8/2006 (soon to be three after Amex starts reporting) and my Student Loan which was opened at a later date. I was just hoping to see how high I could get my credit score as I want to get up to the 760+ range as soon as I can.

My TU report lists as one of the negative factors that the balance remaining on my non-mortgage accounts is too high (The $2600 student loan + my revolving account balances.) Additionally, I have paid off 0% of that loan. It states that most FICO High Score Achievers have paid down on average 35% of the original amount of the loan, in addition to the fact that on average they usually owe less than $1200 on their non-mortgage accounts. I just have that feeling that the TU scoring algorithm is more sensitive to my Student Loan as opposed to EQ and EX. I'm hoping that if I can pay off the student loan, I can gain an extra 5-10 points, if not more.

Message Edited by andyaycw on 08-16-2007 11:47 AM

Your scores are quite good for a young person such as yourself. The length of your credit history and the average age of your accounts are the only things holding you back. As these TLs age, especially the CCs, your scores will slowly improve. Unfortunately, there's no way to know TU's scoring algorithm. Some people see increases in scores when an installment is paid in full while others see decreases.
Credit Profile -
FICO 08 Scores (09-16-2014): EQ 824, EX 817, TU 822
All three scores were 850. Lost points for not having an open installment TL. So, BE WARNED!!!!!
Credit History: 26+ years ~ AAoA: 12 years ~ Util: 1% ~ Inqs: EX 1 (Amex 07-15-2014)

Frequent Contributor
andyaycw
Posts: 298
Registered: ‎07-25-2007
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Re: FICO Scoring and Paying Down an installment Loan

[ Edited ]
Be that as it may, I am a very impatient person and want my scores to be even higher in a short period of time :smileyhappy:

I am curious though...why would some scores go down? It doesn't make sense to me: if you borrow $10,000 and pay it back, doesn't that show you as a dependable borrower?

Message Edited by andyaycw on 08-16-2007 04:51 PM

Starting Score: EQ 773, TU 766
Current Score: EX 794, EQ 787, TU 776
Goal Score: 800


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windrow2324
Posts: 12
Registered: ‎07-23-2007
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Re: FICO Scoring and Paying Down an installment Loan

I'm so glad you posted this, because I'm in a position to pay down a 13,000 loan over the course of the next year. I plan to add $1000 to my monthly payment - you guys are saying that won't make my score go up?
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smallfry
Posts: 4,831
Registered: ‎04-20-2007
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Re: FICO Scoring and Paying Down an installment Loan



windrow2324 wrote:
I'm so glad you posted this, because I'm in a position to pay down a 13,000 loan over the course of the next year. I plan to add $1000 to my monthly payment - you guys are saying that won't make my score go up?





windrow2324 wrote:
I'm so glad you posted this, because I'm in a position to pay down a 13,000 loan over the course of the next year. I plan to add $1000 to my monthly payment - you guys are saying that won't make my score go up?



Might not go up too much but if you want pay the extra amounts. It seems to me that FICO likes to see installments slightly penalizes for new ones and doesn't reward too much when you pay them off. Can't win. Kinda like marriage. LOL.
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fused
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Registered: ‎03-12-2007
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Re: FICO Scoring and Paying Down an installment Loan



smallfry wrote:


windrow2324 wrote:
I'm so glad you posted this, because I'm in a position to pay down a 13,000 loan over the course of the next year. I plan to add $1000 to my monthly payment - you guys are saying that won't make my score go up?





windrow2324 wrote:
I'm so glad you posted this, because I'm in a position to pay down a 13,000 loan over the course of the next year. I plan to add $1000 to my monthly payment - you guys are saying that won't make my score go up?



Might not go up too much but if you want pay the extra amounts. It seems to me that FICO likes to see installments slightly penalizes for new ones and doesn't reward too much when you pay them off. Can't win. Kinda like marriage. LOL.

LOL:smileyvery-happy:
Credit Profile -
FICO 08 Scores (09-16-2014): EQ 824, EX 817, TU 822
All three scores were 850. Lost points for not having an open installment TL. So, BE WARNED!!!!!
Credit History: 26+ years ~ AAoA: 12 years ~ Util: 1% ~ Inqs: EX 1 (Amex 07-15-2014)


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