Understanding FICO® Scoring

[jackg]

My question is: As the balance of an installment (auto) loan is reduced each month does it impact the FICO scoring model subsection titled "Amounts owed", which accounts for 30% of my score, in a positive manner? It seems logical to me, does anyone know reality?

[fused]

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jackg wrote:

My question is: As the balance of an installment (auto) loan is reduced each month does it impact the FICO scoring model subsection titled "Amounts owed", which accounts for 30% of my score, in a positive manner? It seems logical to me, does anyone know reality?

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Good question! There is no simple answer though. I have seen no difference in my scores after paying months on end on my installment loans. In fact when I had one paid off, my scores hardly changed. Others have posted increases and decreases in their scores after paying off an installment account. Went it comes to amounts owed (utilization), revolving util (amount owed) carries a lot more weight than installment util (amount owed). It's far worse to have revolving balances reporting 80% util than it does to have installments balances reporting 80% of the original loan amount. It's not even close!

[jackg]

I do appreciate your response but as usual when it comes to trying to predicting FICO behavior it's still a mystery to me.

Thanks

[George2037]

Still a bit of a newbie here but have been spending MANY, MANY, MANY years reading up and trying to figure out this FICO thing myself I would would agree.  Your FICO got a boost when you first obtained the installment loan, small hit from the inquiry, a small hit for over-all credit history for the new account, and every 6 months of payment history will give you a 2-5 point jump.  The balance owed on an installment loan really shouldn't effect the score. 

CC's are viewed more on a monthly time frame, and the UT effect you more with them due to the fact it gives creditors a better snap-shot of your month to month responsibilities.

Of course I could be totally wrong and if so I'll go back to my corner and keep reading

[VLGaffEsq]

The bottom line is paying off "installment loans" generally DOES NOT increase your FICO scores.  In fact, in some instances, you may even see your score drop due to the fact that the 'FICO scorers' like to see a variety of credit in your report, including an installment loan...go figure!  One would logically think paying off loans and paying down debt would increase your FICO score.  The reality is the best way to maximize your FICO is to have LOW utilization (prefeably 1% to 9%, and NOT 0% ---you need to use your credit cards to show lenders you can properly manage credit) on all your credit cards.  Doing so, always paying on time, and allowing your accounts (tradelines) to age gracefully is the best you can do to achieve the highest possible FICO score.  (And you can no longer fraudulently "piggyback" another person's excellent credit as an AU to boost your score).

[jackg]

I went back to review what FICO says about the "Amounts Owed" section again and this is what it says specifically about installment loans. Reminder, it is 30% of our score, that's huge.

"Proportion of installment loan amounts still owing. (Proportion of balance to original amount on certain types of installment loans.)" What types? Mortgages? The tradeline for my auto loan does not report the original of the loan but mortgages do. So it would appear if I'm interpreting this correctly that auto loans do NOTHING for your FICO score. Right?

However, FICO also published this statement:

"Your score takes into account:

How much of installment loan accounts is still owed, compared with the original loan amounts. For example, if you borrowed $10,000 to buy a car and you have paid back $2,000, you owe (with interest) more than 80% of the original loan. Paying down installment loans is a good sign that you are able and willing to manage and repay debt."

When I read this I was certain that my first conclusion was in error but, you know what? I'm only as confused as I was when I first asked my question.

[smallfry]

My car loans have always reported the original loan amount.

[Timothy]

Of my non-mortgage installment accounts-

I have 13 of them on my CR avg age 66 months.

3 of them are open bal/org amount =67% utl

Bal/Sum of all 13 installment accounts = 26% utl

IMHO-
1 installment under 50% of org balance, 1 mortgage over a year old, 2 credit cards (older the better) with low UTL
is the best MIX.

An Installment account will help with mix,
Can help with Age (but can hurt avg age)
Missed payment KILLS payment history score.