@Anonymous wrote:
@arkane wrote:I'd argue I could just as easily game the system by opening an SSL/Self Lender/some other secured loan with paltry interest just prior to paying off a loan so I always have at least one installment account open. I understand FICO's algorithm is based on big data, but I just think it ridiculous that the more financially responsible you are, the more you have to game the system just to maximize your score. Then again there's probably an argument to be made about not conforming to the norm or being the 0.01%.
Except "your" FICO score isn't yours, it's FICO's. The lenders care because FICO isn't just a risk metric, it's a profit metric. Debt isn't financed by lenders as much as investors, and lender-servicers use FICO scoring to sell investment-grade credit tranches to investors.
So in the end, your FICO score is closer to your "how profitable is this person" score to investors.
Also remember, and I say this as someone who has invested in ABS packages in the past, that a person with an 850 FICO score is probably less profitable than someone with a 600 score. I've had my eye out on subprime credit investments because I'm willing to stake a big risk to get a sweet piece of that 29% interest rate on store cards. Someone with an 850 score doesn't appeal to my risk-reward strategy, but neither does someone with a 490 score. That 600-679 range looks perfect, especially with the new FICO deep history products that let you analyze an individual creditor over time to see if they're likely to carry a balance.
Great point, probably best to think of FICO in terms of a "profitability score" and everything will make much more sense.
And by that metric, I'm probably sub, sub, subprime.
@Anonymous wrote:Here's a thought I'd like to throw out there. Inside the OP's first post, and inside Trusty's first response, are two different conversational topics:
(1) DESCRIPTIVE. How does FICO 8 in fact work, with respect to installment debt? This question helps the person predict the effect of decisions he makes on his score, and may also suggest work arounds. A related question is, once you know how FICO 8 works, do the other models work differently? (E.g. the old mortgage models, FICO 9, the various Auto and Bankcard flavors, etc.)
(2) PRESCRIPTIVE. Is the reality described in #1 (the way the model does in fact work) something that is wrong, or broken, or defective, or otherwise in need of improvement? (And here we want clarification on improved for who? To make the customers happy? To give the lenders better gauge of risk?) Related here are the Illuminati style speculations about whether FICO is in bed with all the big banks to force consumers to stay in debt.
I'd suggest that the two things are very different, and they can be easily conflated, sometimes even within the same paragraph. Trusty began by asking if we had data to show that ABCD's description (#1) was right, and then began to argue against it in a prescriptive sense (#2).
The description as given by ABCD is right. FICO 8 likes it when you have open debt that is mostly paid off. It likes it much less when you have no open debt or when you do but owe most of the original amount.
Prescriptively, I think it is likely (just my opinion) that future models will consider closed installment loans with a long payment history (e.g. 36+ months) where the person made a payment every month. That's easier to do when a model has "trended data" -- and these data only became available pretty recently, in the larger history of credit reporting. TD did not exist at all back when FICO 8 was released.
To circle back to the OP's original question, it's hard to know what will happen (descriptively) because we don't know from his initial post what open installment loans he still has. Here is what we'd need to know:
Just before the mortgage payoff, list your open installments loans:
* Mortgage. Balance = _____ Original loan amount = _____
* Loan. Balance = _____ Original loan amount = _____
* Loan. Balance = _____ Original loan amount = _____
etc.
When the new mortgage appears, what will it look like?
* Mortgage. Balance = _____ Original loan amount = _____
PS. Atravuzdar is basically saying this too -- we need to know more about his loans.
To answer this question here is my specific profile:
Mortgage. Balance = $138,000 Original loan amount = $155,000; FHA paid on for 4 years w/ no lates
No current open Installment loans/auto's
However for what it's worth:
2 closed auto loans PIF since 2009
1 closed PIF personal loan in 2016
New mortgage when it pops up: (my best guesstimate)
Mortgage. Balance = $265,100 Original loan amount =265,500
