Paying off a CC results in score inrease, but paying off a personal loan does not?

[danev2]

Interesting happenings with score this weekend. Last month I finished a refi on house, took some cash out and paid off all the credit cards and bills. They have been reporting finally and my score has gone up. Great.

Friday, a $700 Care Credit acct finally reported as paid, zero balance and score went up to 678, finally in the good range.

Sunday Fico alert thingy dings, and my loan from Enerbank (unsecured personal loan) for $6500 reported as paid in full.

NO score increase. Zippo.

Why? Both accts were/are in good standing and neither had any lates on them.

Fico "scores" CC's and personal loans differently?  When I got the loan from enerbank last year, it hit my score DOWN 5 points. and that was right at the beginning of it.

As a side note.  I will give a little shout out to Enerbank. They are a "bank" of sorts that specializes n home improvement type loans or costly repairs. In my case, Arizona, middle summer and my AC died. Badly. Completely. The company was great to work with and handed me a $7K+ loan quick!

[Anonymous]

Count yourself lucky. Normally when an installment loan reports paid, it results in a score drop.

[Anonymous]

Hey Danev.  Yep, FICO treats credit cards and installment loans very differently.

In general, as long as you have a positive balance reporting on one card somewhere, FICO likes it when you pay off credit cards.  For CC debt, the more cards reporting $0 the better, and also the lower your overall utilization percentage, the better.  (Those are different factors but FICO looks at both.)  As a slight caveat for the utilization factor, FICO probably treats all utilizations between 1 and 7 % the same, but if you are really angling for the best score it's sometimes easiest to just push your U% down to 1-2% just for simplicity.

But for installment debt, FICO likes it (especially the latest FICO models, like FICO 8) when you have open loans that also involve a lot of the principal paid off.  When a loan goes from being mostly paid off to closed, you lose that extra reward, and it can translate into a substantial score hit if the loan that was just paid off was your ONLY installment loan.  (As CapTool mentioned.)

Because you received no score drop at all, I am guessing that you have another open installment loan you are still paying on.  (Car loan, mortgage, anything like that?)  And I am also guessing that you still owed a fair chunk of the principal when you paid off the personal loan.  I'm really curious to hear whether either or both of those guesses are right.

[Anonymous]

This month my home equity loan was paid in full and my Equifax score fell 37 points! 

[CreditDunce]

When you paid off your personal loan, you also closed the installment loan.  Did you also close your credit card after you paid it off?  I bet you would find closing your last revolving account hurting your credit score, just like closing your last installment loan.  You can still have a great credit score without any open installment loans.  I am not so sure that you can have a great credit score with only installment loans.

[danev2]

Yes 10pts for house of Dixie.
I have a mortgage. Thats all no car payment.
And I did have most of the balance on the enerbank loan when I paid it. Orig $7k paid off remaining $6400
My paid off credit cards are all still open

[Anonymous]

OK 10pts for house of Dixie is going to keep me cheerful for at least a month.  The important thing is to understand why I made those two guesses the way I did.

If this had been your only open installment loan, then when you closed it, you would lost those extra points FICO 8 gives you for having an open loan.

If you had the loan mostly paid off (say 90% paid off, for example) then when you made the last payment, you would have lost the points FICO 8 was giving you for having a loan that is mostly paid off.

But you lost zero points.

Ergo, the loan was NOT your only installment loan and it was also one you still owed a fair chunk of change on.

I mention it by way of giving you a framework for seeing how all these things do hang together.  FICO's scoring, once you know largely how it works, is not hard to predict and therefore easy to use to make choices that benefit yourself.

Good luck!

[elim]

The way Fico scores paid instalment loans is the biggest crock ever.  

One of the reasons I truly despise Fair Isaac "Corporation".    I guess if your loan is paid, a 30 point drop will gain some lender a bit more interest when you finance your next item.   A revamp is in order there.

luv this forum though    :]

[Anonymous]

I think one of the veterans here has observed that it is only FICO 8 that appears to be so slanted in favor of open installment loans.  Previous versions of FICO, I think he observes, give you a lot of credit for closed installment loans too.  For example the models that are still used in mortgage underwriting do that, and I'd guess that the auto enhanced FICO models love seeing closed auto loans that were paid on for at least a couple years.

[Revelate]

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@Anonymous wrote:

I think one of the veterans here has observed that it is only FICO 8 that appears to be so slanted in favor of open installment loans.  Previous versions of FICO, I think he observes, give you a lot of credit for closed installment loans too.  For example the models that are still used in mortgage underwriting do that, and I'd guess that the auto enhanced FICO models love seeing closed auto loans that were paid on for at least a couple years.

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FICO 04 would see a minor drop (or so illecs had found, I never saw that first hand) when the installment loan closed but any open loan maxxed out that score card.  FICO 8 wants open installment loans, and wants them at a pretty ratio of current balance to original balance.  

I would agree it's sort of asinine from a consumer perspective but it was just what they found in their statistical data.  If you don't have current installment loans it's really easy to gimmick anyway, though if you have large student loan debt, or a big auto loan, or depending how a mortgage is actually scored, maybe one of those either... sort of stuck under FICO 8.

Further notes, EX in the mortgage trifecta is still FICO 98, and that does behave similarly to FICO 8; I don't know why they changed it in FICO 04 and then changed it back.  Also all FICO 8 industry options also do this from my own data which includes both auto and bankcard enhanced scores, every single FICO 8 score moved upwards when I was playing with my installment utilization; FICO 04 didn't.