I paid off my mortgage and my credit score dropped from 825 to 799

[SouthJamaica]

See, MyFICO Forum has ruined me, by taking away my innocence.

In the old days (long before I ever thought about FICO), paying off an auto loan, getting rid of the bank, and getting a clean title was a pure pleasure.

Now it's different. I just took out a new auto loan the other day. Down the road when I'm at the point of being ready, willing, and able to pay it off -- I won't be able to look forward to getting my clean title with the same joyful outlook; instead I'll have a heavy hand issuing that final payment, knowing that FICO is about to punish me for no longer needing the bank.

[Anonymous]

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@Thomas_Thumb wrote:

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I disagree with this. What I think FICO should do is allow closed loans to satisfy credit mix to the same degree as open loans. There should be no score drop associated with paying off and closing your only open loan. Put another way, a closed loan still satisfies the "installment loan credit management element" and the payment history shows how well it was executed. There is no credit worthiness reason that comes to mind to justify deducting points because a loan has been paid and closed.

Isn't that what the OP was getting at though... that he had finished paying off an installment loan and once it was closed (not current) his credit score took a hit?  It would suggest to me, then, that a closed installment loan isn't having the same impact on ones credit score than an open one.

[Anonymous]

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@Anonymous wrote:

I agree that closed loans should help satisfy credit mix, however I would modify that with some kind of minimum time frame. Otherwise it would be too easy to manipulate scores by taking out a small loan and paying it off as soon as it reports. And, yes, I know people are doing similar with the shared loan method, but at least they're building a history of payments.

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I agree with that, but would add to it that it should include a minimum time frame and dollar amount.  Just for a number, let's say the minimum time frame decided upon was 3 years; 36 months is usually the smallest term you'd see for a car loan for example.  I think it's more significant if the borrower paid back $15k over that 3 months as opposed to $7500. 

It would have to be some sort of equation built into scoring that factored in duration of the loan and the amount of the loan.  Not sure how it would work exactly, but it could be done.  Something like a mortgage for example that has a 30 year term... say someone pays it off in 20 years.  That term is without question more than enough to suffice with respect to duration of the loan, and if the amount was $100k+ then certainly the amount was more than significant enough.  Someone that pays that off without incident, according to the terms of the loan in my estimation has satisfied all that is necessary with respect to an installment loan as part of their credit mix.  There would be no logical reason IMO for that closed loan to negatively impact the credit score of that individual.

[RonM21]

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@Anonymous wrote:

I agree that closed loans should help satisfy credit mix, however I would modify that with some kind of minimum time frame. Otherwise it would be too easy to manipulate scores by taking out a small loan and paying it off as soon as it reports. And, yes, I know people are doing similar with the shared loan method, but at least they're building a history of payments.

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This was my thought also. It'd be nice that the scoring would recognize that you paid back fully on a loan, but there would have to be a line of time so that it couldn't be manipulated in a negative way.

[Anonymous]

That's why I think it should take into consideration amount of money as well.  Time in and of itself isn't good enough.  So instead of a $500 share secure loan for 5 years someone does $1000 for 10 years or however many years was deemed to "count" as long enough. 

[Anonymous]

FICO only cares about how much debt you have. No debt, low score.

In the 1990's and up to 2007 I had a $100K mortgage, no savings, was living paycheck to paycheck and I had credit lines higher than than my mortgage balance. My FICO was close to 800.

In 2016 I have no mortgage, two houses completely paid for, no credit card debt or lines (all closed by the banks in the 2008 crash) or any other debt and $50K cash in liquid investments and my FICO score is below 600.

I sure am glad I don't belong to or use those peer-to-peer lending sites, I would lend myself a dollar.

[Anonymous]

"No debt low score" is quite a generalization.  There are plenty of people out there that don't have an installment loan of any type that have some CC's but carry little to no balances on those CC's.  Those type of people have barely any debt, but can have excellent credit scores.

[Thomas_Thumb]

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@Anonymous wrote:

FICO only cares about how much debt you have. No debt, low score.

In the 1990's and up to 2007 I had a $100K mortgage, no savings, was living paycheck to paycheck and I had credit lines higher than than my mortgage balance. My FICO was close to 800.

In 2016 I have no mortgage, two houses completely paid for, no credit card debt or lines (all closed by the banks in the 2008 crash) or any other debt and $50K cash in liquid investments and my FICO score is below 600.

I sure am glad I don't belong to or use those peer-to-peer lending sites, I would lend myself a dollar.

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Your score is low because you have no lines of credit of any type. So, you are invisible. Credit reports don't look at assets and credit scores are not wealth scores. A year from now I wonder if you will have a Fico score. Not sure how closed accounts "report". See below cut paste from MyFICO (bullet point #3 not included)

What are the minimum requirements for a FICO score?

In order to receive a valid FICO® Score, the credit report must have:

• At least one account opened for six months or more, and
• At least one account that has been reported to the credit bureau within the past six months,

The minimum scoring criteria may be satisfied by a single account or by multiple accounts on a credit file. In certain rare cases, whether a given credit report qualifies for a FICO® Score may vary across different FICO® Score versions.