Paid off car loan..

[Anonymous]

..asking a question in regards to my girlfriend's credit score...

She traded in her car (had 2 years left on the loan) in Feb... It is now paid off, and the loan ($11k balance, confirmed that it is paid off via finance co.) is still showing on her credit report, as well as the loan on her new car ($26k). What effect do you think it will have on her score when the paid off account is no longer reporting a balance? Should there be an ydifference? I expect to see it's status change any day

[Anonymous]

Her score is likely to decrease. It's because of utility. Here's how it works:

Let's say that the first car loan (the one that's paid off now) was for $24,000. The second one, as you said, is for $26,000. That's a total of $50,000 in loans showing on her reports right now. Her reports show that she owes $11,000 on the first loan (because it hasn't reported yet) and $26,000 on the second one (or close to it). So she owes (supposedly) $37,000 which is 74% of $50,000.

When the loan reports as paid in full, then she'll have $26,000 is open installment loans with close to the whole $26,000 owed. Close to 100%. Going from somewhere around 74% to close to 100% will probably cause her score to drop.

It doesn't seem right (as paying off the loan should be a positive thing), but unfortunately that's how it works.

[Appleman]

Difficult to fully predict.

She likely received a drop in score for, new inquiry(ies), new account and high utilization for the auto loan (still owing near 100% of original loan).

New account decreases AoAA (could have negative effect if thin file)

You paid off a loan that was paid down (likely a small decrease). Still have a good mix of credit types, no change.

As the old loan shows paid in full this will decrease total debt owed (as compared to when both loans still showed a balance).

I would take a guess and think that the new loan dropped her score to the level right now and once the old loan shows paid she will be slightly up compared to the score today.

Let us know what you find out.

[Revelate]

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@Appleman wrote:

Difficult to fully predict.

She likely received a drop in score for, new inquiry(ies), new account and high utilization for the auto loan (still owing near 100% of original loan).

New account decreases AoAA (could have negative effect if thin file)

You paid off a loan that was paid down (likely a small decrease). Still have a good mix of credit types, no change.

As the old loan shows paid in full this will decrease total debt owed (as compared to when both loans still showed a balance).

I would take a guess and think that the new loan dropped her score to the level right now and once the old loan shows paid she will be slightly up compared to the score today.

Let us know what you find out.

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Unfortunately it's a straight negative since credit mix is already taken care of in this case; aggregate debt either revolving or installment doesn't matter under FICO (Vantage calculates things differently) it's all in the percentages... which is why a $500 share secured loan is hugely beneficial, and a mortgage isn't under FICO 8 as absurd as that sounds from a risk modelling perspective.

You're right though it probably won't be a huge drop based on average car prices; for example, the tale of two Teslas, if it were a Model 3 at call it 35K, my file would drop 6 points on a FICO 8 score (or at least it did last year and my file hasn't materially improved since then so no rebucketing and the same negatives there); however, if were the 11K left on a well optioned Model S and therefore under 10%, well, that'd be 25ish points on my file and worse on a clean one.