@jello77 wrote:
I have been checking on other credit-related web sites and forums for more information about this question of whether closed accounts are included in the "Types of Credit" part of your score.
What I found is confusing and contradictory.
On one hand, I have found many examples of people saying that after they paid off an auto or installment loan, their score took a large drop, which would imply that closed accounts do NOT count as part of your credit "mix."
Here is one example of this:
"Last week, I paid off my auto loan. This week, my FICO score dropped 60 points.There have been NO other changes to my credit report."
Here is another statement that implies the same thing:
"In a CMAC course-on-CD I listened to, recently, they said that a good credit report and score must have 1 mortgage, 1 installment loan (automobile, etc.), and 2 credit cards on it. All had to still be ‘active’ in order to boost your score."
On the other hand, I found this article on bankrate.com quoting a FICO manager that implies just the opposite. Here are the two key quotes from the article:
"Barry Paperno, the consumer operations manager at FICO ... walked me through the effect that account closures can have on the five factors that comprise your FICO score."
"The factor that considers types of credit used includes both open and closed accounts."
So we are left with a mystery. A FICO manager says closed accounts are included in your types of credit mix. But how can we explain why so many people say paying off auto and other installment loans causes a drop in score? When a revolving credit account is closed, a drop in score often results because the credit limit for the closed account is no longer included in the utilization factor, causing the utilization rate to increase. But auto and installment loans are not included in the utilization rate, so that could not be the reason for a drop in score when the loan is paid off.
Has anyone here ever paid off an auto or installment loan and found that their score did NOT drop?
Hi jello77,
No mystery here. And thanks for posting the link to the article quoting Barry. If Barry gives you FICO information, the debate is over. You have it right from the horse's mouth. And I wasn't aware of the fact that closed accounts factor into credit mix.
How can we explain why so many people report a huge drop in scores when they pay off an installment? Because it's the internet. Because there are many factors which affect your score and often folks overlook other issues on their report. Because when I get a ticket for speeding, I can think it's because I drive a red car, and overlook the fact that I was driving 45 in a 25 mph zone.
In answer to your last question, DH paid off his only installment and saw zero, nada, zilch score impact.
OP - good question and great answer from the ultimate source - FICO's own Barry. Assuming, of course, that the article was quoting him correctly. He knows his stuff. Thanks for the info!
