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Paid-off/Closed Loan not dropping credit score?

Established Contributor

Paid-off/Closed Loan not dropping credit score?

I posted in October about my auto loan reporting paid/closed, I thought my scores dropped about 20 points across the board because I wondered if my loan to balance ratio increased without the auto loan reporting.

 

I did gain some points back when I finally got my student loan below 99.9% loan to balance. 

 

But, that's not why I'm posting. I thought I would just share an odd observation.

 

We often see scores drop when an installment loan is reported as paid and closed. 

 

Recently, I refinanced my student loans. The bank who will now hold my loan has not reported the new account. Navient, however, has reported my account as paid and closed. This has been reported on all three credit reports (verified as Paid and Closed TU and EQ on CK, and EX on Experian). Notably, there was really no change in 2 of 3 FICO8 scores (TU, EX are hanging out within +/- 5 points of last month's scores) with the loan reporting as closed. (Also, not sure what's going on with EQ, as the other two triggered alerts on MF, though I assume that it also follows this pattern.)

 

So, until my refinance actually shows up on my reports, I'm in that weird place where I have no installment loans reporting.

 

I'll be intrigued to see what the new loan reporting does to my scores, as it should 1) drop my AAoA a touch (still over 7 years, hovering around 8), and 2) have high loan utilization (should report 98.5%). 

 

Thoughts? 

Garden Club Member since 3/9/2017
Message 1 of 8
7 REPLIES
Senior Contributor

Re: Paid-off/Closed Loan not dropping credit score?

No installment loans reporting (going from an installment loan reporting at low utilization) usually results in a 25-30 point FICO 08 drop.

 

An AAoA "drop" of a decimal value but not a whole number will not result in a scoring decrease.  Dropping from 7.9 years to 7.0 years is scoring exactly the same, "7" under FICO scoring. 

 

High loan utilization reporting will result in a scoring decrease relative to low loan utilization reporting, but will be a benefit to having no installment loans reporting at all.

Message 2 of 8
Community Leader
Senior Contributor

Re: Paid-off/Closed Loan not dropping credit score?

Hello iHeartWings!  Nice to see you again.


Can you locate that thread from back in October?  If you can, it would be great if you could post a link to it in this thread.  Any time somebody is giving an update on a discussion that happened many months ago, it's helpful to provide a link back to it if you can.

 

I was just thinking of your case the other day, but I couldn't remember any of the details.

Message 3 of 8
Super Contributor

Re: Paid-off/Closed Loan not dropping credit score?


iheartwings wrote:

I posted in October about my auto loan reporting paid/closed, I thought my scores dropped about 20 points across the board because I wondered if my loan to balance ratio increased without the auto loan reporting.

 

I did gain some points back when I finally got my student loan below 99.9% loan to balance. 

 

But, that's not why I'm posting. I thought I would just share an odd observation.

 

We often see scores drop when an installment loan is reported as paid and closed. 

 

Recently, I refinanced my student loans. The bank who will now hold my loan has not reported the new account. Navient, however, has reported my account as paid and closed. This has been reported on all three credit reports (verified as Paid and Closed TU and EQ on CK, and EX on Experian). Notably, there was really no change in 2 of 3 FICO8 scores (TU, EX are hanging out within +/- 5 points of last month's scores) with the loan reporting as closed. (Also, not sure what's going on with EQ, as the other two triggered alerts on MF, though I assume that it also follows this pattern.)

 

So, until my refinance actually shows up on my reports, I'm in that weird place where I have no installment loans reporting.

 

I'll be intrigued to see what the new loan reporting does to my scores, as it should 1) drop my AAoA a touch (still over 7 years, hovering around 8), and 2) have high loan utilization (should report 98.5%). 

 

Thoughts? 


If it's going to report at 98.5%, yes your scores will take a hit.

FICO8 EQ 721 TU 772 EX 769 Total revolving credit 500k
Message 4 of 8
Established Contributor

Re: Paid-off/Closed Loan not dropping credit score?

No worries. I started a new thread largely because my situation had changed, and I was just surprised that my FICO scores didn't take a hit when my student loan was repotted as "Paid and Closed," as I have no other installment loans reporting on my CR at this moment.

 

Here's a link to my previous post:

 

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Yet-another-paid-auto-loan-dropped-my-cre...

 

Also, I went back and what balance had been reported prior to my reports being updated as paid, my loan to balance was at 98.3%, so whatever is reported this month would not be significantly different (98.4%, assuming it doesn't count for additional payment to principal that was applied the day after the due date). 

Garden Club Member since 3/9/2017
Message 5 of 8
Moderator

Re: Paid-off/Closed Loan not dropping credit score?


iheartwings wrote:

No worries. I started a new thread largely because my situation had changed, and I was just surprised that my FICO scores didn't take a hit when my student loan was repotted as "Paid and Closed," as I have no other installment loans reporting on my CR at this moment.

 

Here's a link to my previous post:

 

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Yet-another-paid-auto-loan-dropped-my-cre...

 

Also, I went back and what balance had been reported prior to my reports being updated as paid, my loan to balance was at 98.3%, so whatever is reported this month would not be significantly different (98.4%, assuming it doesn't count for additional payment to principal that was applied the day after the due date). 


I don't know that there's a hit between having no open installment loans vs. having one at ~100% balance.  98% is not under a breakpoint, interesting datapoint that your >100% SL counted more against you, not sure I fathom that one given it doesn't appear to work that way for revolving from what I have seen and might have been some something else which for small point swings are hard to diagnose without repeated events at least for me anyway.

 

I haven't been in the situation of having no open loans since I started this journey but I think others who did followup testing on the SSL trick didn't report gaining any points when they tacked on the loan but I don't know recall what the rest of their file looked like at the time in terms of closed loans reporting still or not... the money shot of course is getting that loan paid down to some small fraction of it's balance. 

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 758, EX 2 758, EQ 8 795, TU 8 762, EX 8 786 (7/28/17)
Goal Score:    EQ 5 750, TU 4 750, EX 2 750, EQ 8 800, TU 8 Blah, EX 8 800 (01/01/18)


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Message 6 of 8
Established Contributor

Re: Paid-off/Closed Loan not dropping credit score?


BrutalBodyShots wrote:

No installment loans reporting (going from an installment loan reporting at low utilization) usually results in a 25-30 point FICO 08 drop.

 

Perhaps this was the rub. My loan was not reported at low utilization but was then paid off - there was no score drop with loan payoff. If that is true, would it be reasonable to think that the new loan reporting at about the same utilization results in essentially no change in FICO8? 

 

An AAoA "drop" of a decimal value but not a whole number will not result in a scoring decrease.  Dropping from 7.9 years to 7.0 years is scoring exactly the same, "7" under FICO scoring. 

 

Yes, I remember this - so I don't think that should be so much of an issue. 

 

High loan utilization reporting will result in a scoring decrease relative to low loan utilization reporting, but will be a benefit to having no installment loans reporting at all.

 

This is also what confuses me. At this moment - It appears that I have installment loans reporting. My scores didn't change with the loan reporting as closed or paid off - that's the observation I found interesting. I suppose we'll see what happens when the new loan reports. 


 

Garden Club Member since 3/9/2017
Message 7 of 8
Valued Contributor

Re: Paid-off/Closed Loan not dropping credit score?

Maybe if the AAoA stay at 7, you will not get a drop for that. But the loan will report as new, and anything new may drop a score some points.

 

Usually the 25-30 points for paying off a loan is because you get an extra 25-30 points by having a loan mostly paid (less than 8.9%). That's why people without a loan (like me) chose to open a SSL, to get those extra 25-30 points.

Message 8 of 8