Score drop when auto loan reported. How long to regain lost points.

[sjt]

I recently got an auto loan and when it started to report my EX dropped 7 points. I knew there would be a score drop around 5 points or so. How long will it take to regain those points back?

[Anonymous]

I have a boat loan that reports as an auto loan on everything, snagged it on May 23, 2017.

For whatever reason on 12/2/17 my TU FICO8 jumped up unexpectedly from 695 to 701 and my Vantage Score (FAKO) on TU went up from 699 to 732 -- neither had anything change balance wise at all, and the only thing I can really figure is either my little May app spree inquiries all started aging off a tiny bit, or maybe the 6 months of my auto loan reporting helped.

There's no possible way for me to know how many FICO points I lost when the loan reported because my reports have been bonkers in changes around that time, but it would be nice if some of those points were from the loan itself.

I don't know if we have a lot of data points on when a loan's FICO ding really reduces in terms of aging, though.  I think it has more to do with percentage balance to original balance (installment utilization).

[Anonymous]

As ABCD suggested, we'd need to know more about the accounts on your report before we could say.  Specifically we'd need a list of all your open installment accounts like this:

Loan 1.  Balance = _____   Original loan amount = ____

Loan 2.  Balance = _____   Original loan amount = ____

Loan 3.  Balance = _____   Original loan amount = ____

 etc.

Also list closed accounts if they have a balance.

PS.  There are only a few areas where you can "get points back."  Inquiries are an example.  The penalty for the inquiry will vanish after a year.  Age of Youngest Account is another.  But the hit you took to your Average Age of Accounts (for example) is permanent.  The good news is that any time a person stops applying for accounts his AAoA starts going steadily back up.  The thing is, you would have also got that AAoA increase if you had not applied for the loan.

Anyway, let us know what your installment accounts are and we can tell you some more. 

[sjt]

Thanks all for your input.

The only installment loan on my CR is the auto loan. Opened in 11.17 balance and loan amount is the same ($24399.)

[Anonymous]

Did you have any closed loans (or any other installment accounts) on your report?  When was the inquiry made for that loan?  Did the inquiry appear on Experian?  Did the inquiry appear on more than one bureau?

Right now you owe 100% of the original amount of the loan.  As you pay that loan down over time, the percentage you owe will go down.... 90%, 80%, 70%, etc.  FICO 8 likes it best when you have an open loan and most (but not all) of the debt is paid off.  What is known for sure is that when you get to owing less than 9% you will have gotten as much of a scoring boost as you can.  (typically about 30 points -- roughly.)  Some people think that this might happen at a higher % if the person has been making steady payments for (say) 25 or more months.  That's speculative but it might be true.  Also speculative but quite reasonable is that a person might get some of the 30 points at (say) 69%, some at 29%, and the rest at 9% -- again nobody knows for sure.

So the answer is that when you have paid off most of the loan you will have gotten a very nice scoring boost to where you are now.  When you get close to that point, and if you still only have one loan, then you will want to implement something called the SSL technique to prevent yourself from losing those points when you pay the car loan off.

[sjt]

Hi CCinD-

No other installment loan on my report. I have had loans in the past but they dropped off my report. The auto loan was from Pen Fed and they used the inq when I applied for membership. They pulled Eq.

[Anonymous]

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@sjt wrote:

Hi CCinD-

No other installment loan on my report. I have had loans in the past but they dropped off my report. The auto loan was from Pen Fed and they used the inq when I applied for membership. They pulled Eq.

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Ok, this complicates things a bit.  I'll try to be clear on it, though.

Going from zero installment loans open to having an installment loan reporting affects a bunch of different areas in different ways.  Here's the quick list (I haven't had coffee yet, so beware):

1. "Credit Mix" is 55 points total of FICO scoring.  Not having any installment loans whatsover dings you for possibly as much as 30-40 points.  Adding an installment loan will boost your score as much as 30-40 points.  You got this 30-40 point boost already just when the loan reported, and you'll continue to get it until the loan is closed.  This is why the Alliant SSL is so highly recommended for people who have their only loan about to be paid off.
2. "Amounts Owed" is 165 points total of FICO scoring, but most of this is credit card utilization.  Installment "utilization" is a small portion of this, probably somewhere around 15-20 points.  If your installment loan utilization is 100% (current balance = original balance) you're probably dinged for those 15-20 points.  As you pay down that installment loan, you get these points back.  They're all back when you owe less than 8.9% of the original balance.
3. "New Account Penalty" is pretty negligible.  Probably 5 points only, maybe 10 points.  New accounts usually hurt the most for 0-3 months, then less for 3-6 months, then not at all after that.  It's nothing.
4. Inquiries are pretty negligible.  Usually 0-1 inquiry has no effect, 2-5 each have more effect, and 6+ can ding you up to 30 points (maybe 40?).  But after 6 months, an inquiry counts for less, and after 12 months it has zero effect on your score.
5. Average Age of Accounts -- my guesstimate is that under 6 months is derogatory and could hurt you for maybe 20-25 points.  6-24 months is still painful, hurts for maybe 15-20 points.  Getting AAoA above 24 months gets you to a place where it's not huring much at all.  Tiers continue from there, probably 36 months, 48 months, 60 months, 72 months, etc.

So the new auto loan is boosting your "credit mix" by 30-40 points, the new account penalty may hurt you for 5 points for 6 months, the inquiry may hurt you for 5 points for 6-12 months, the high balance "utilization" may hurt you for maybe 20 points for the first year and then less and less, and the AAoA ding may be hurting you for as much as 5-10 points.  Add it all up, and you're getting hit for maybe 10 points or so but after 6 months you'll start getting points back, and after 2 years you'll end up with more points than before!

But when you pay off that loan, if you don't have another loan (SSL!), you'll lose 30-40 points again from wherever you are in the future.

[Anonymous]

Well I guess I'll be as good a data point as any just a few months earlier than you.  I bought my car over Labor Day weekend, also with PenFed (what interest rate did you get?).  Although I won't be able to control all variables as I am just now learning the wonders of having a split file and things randomly disappearing and reappearing.

[Thomas_Thumb]

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@sjt wrote:

Thanks all for your input.

The only installment loan on my CR is the auto loan. Opened in 11.17 balance and loan amount is the same ($24399.)

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Thanks for the clarification and info on the score drop. The addition of a loan (if there are none in your file either open or closed) should be beneficial to credit mix and be worth a few points (say 10 to 20). However, this is offset be high a high initial balance to loan ratio which results in a penalty in the amount owed category. It appears that the inquiry associated with the loan coupled with a high initial B/L cost more points  and the now active low age of oldest installment loan are more costly short term than the benefit associated with improving credit mix.

The good thing is that longer term (after a couple years) payment history should be beneficial to score as will reducing outstanding balance to loan ratio. You may see some score  benefit when B/L drops below 70%. 

[Anonymous]

As TT stated above, it could be a couple of years before you gain back the points associated with the loan utilization itself.  As others have stated though, you'll get those points back elsewhere first such as the inquiry aging, your AoYA aging, your AAoA possibly crossing a threshold, etc.  So, you'll see those 7 points come back quick, they just won't be 7 points related to the utilization on the new auto loan.