topic Re: Data points - Auto loan payoff. Big score drops in Auto Loans

Data points - Auto loan payoff. Big score drops

DoogieBall — Tue, 21 Feb 2023 22:51:40 GMT

Hey everyone! I fortunately was able to pay off my 60 month auto loan 6 months early. Here are the resultant FICO credit score drops. Much higher than I expected and maybe this will help other people.

EQ: 850 -> 792 -58pts

EX: 828 -> 768 -60pts

TU: 844 -> 780 -64pts

Re: Data points - Auto loan payoff. Big score drops

Adkins — Wed, 22 Feb 2023 15:22:12 GMT

@DoogieBall wrote:
Hey everyone! I fortunately was able to pay off my 60 month auto loan 6 months early. Here are the resultant FICO credit score drops. Much higher than I expected and maybe this will help other people.

EQ: 850 -> 792 -58pts
EX: 828 -> 768 -60pts
TU: 844 -> 780 -64pts

Unless you have another reporting loan (school, mortgage, maybe personal), FICO penalizes your score without an open loan reporting. It is possible to get back to where you were with time though. Congratulations on your payoff! Finances over FICO.

Re: Data points - Auto loan payoff. Big score drops

JoeRockhead — Sat, 25 Feb 2023 12:54:48 GMT

As many times as I've seen this happen, and understand that it's just a fact that you get penalized for not having an open loan, credit mix, using your credit, managing different types of debt, etc, etc... Taking such a large hit to scores just makes no sense, at all. But, good for you, and congratulations on your payoff!

Re: Data points - Auto loan payoff. Big score drops

Beefy1212 — Sun, 26 Feb 2023 16:10:21 GMT

@JoeRockhead wrote:
As many times as I've seen this happen, and understand that it's just a fact that you get penalized for not having an open loan, credit mix, using your credit, managing different types of debt, etc, etc... Taking such a large hit to scores just makes no sense, at all. But, good for you, and congratulations on your payoff!

@JoeRockhead @AdkinsYou don't actually get a penalty for no active loan, and as long as the loan is on your report satisfies the credit mix bonus, you also do not lose credit age, and the loan will continue to age until it falls off your report in 10 years (or 7 with bads)

What happens is loans have an analog to credit card utilization. Active loans get a significant score boost below 9.5% remaining balance. When you finish your loan there is no penalty you simply stop getting a bonus. I know some might say that is semantics but it is not. Depending on your remaining balance it is possible your score will increase paying a loan from a very high remaining % of balance in relation to starting amount to zero.

Re: Data points - Auto loan payoff. Big score drops

JoeRockhead — Sun, 26 Feb 2023 16:47:07 GMT

@Beefy1212 wrote:
@JoeRockhead wrote:
As many times as I've seen this happen, and understand that it's just a fact that you get penalized for not having an open loan, credit mix, using your credit, managing different types of debt, etc, etc... Taking such a large hit to scores just makes no sense, at all. But, good for you, and congratulations on your payoff!
@JoeRockhead @AdkinsYou don't actually get a penalty for no active loan, and as long as the loan is on your report satisfies the credit mix bonus, you also do not lose credit age, and the loan will continue to age until it falls off your report in 10 years (or 7 with bads)

What happens is loans have an analog to credit card utilization. Active loans get a significant score boost below 9.5% remaining balance. When you finish your loan there is no penalty you simply stop getting a bonus. I know some might say that is semantics but it is not. Depending on your remaining balance it is possible your score will increase paying a loan from a very high remaining % of balance in relation to starting amount to zero.

Geez, just when I was confident in going to bed last night thinking I had all the bases covered with the whole etc, etc...thing. I wake up to find out that sadly, I was mistaken. To be clear, the intention of my post was to say in essence 'hey @DoogieBall, no matter what cockamamie antecedents may exist, it's a bummer your scores took that kind of massive hit, I can relate and my condolences, but never the less, good for you for paying off the loan'.

While it's true you do get a boost in your score (and we're talking about FICO8 here) when your balance goes under 9% (I think 8.9% is the widely accepted threshold), I find it highly unlikely, and think we can agree, that Mr. or Mrs, or Miss @DoogieBall got a 58, 60 and 64 point bump, or bonus in their scores at that moment in time. If I had to guess, I'd say it was more in the 30+- range. with that said, it would also have to be considered that their scores also increased as the % of loan balance diminished over time until said time it was paid in full, as there are other factors involved during that time as well, such as their file/other accounts aging further, other account balance factors, etc, etc...

Perhaps they will chime in and let us know what kind of score bump they initially got (if they noted it) so that future generations of MyFICOers can have more DPs to consider as further evidence, or pontificate, whatever the case may be. Regardless, It's been pretty well documented, and widely acknowledged on these threads that there is strong evidence to substantiate a FICO penalty exists for having no open installment loan, just as there is a penalty for having 0 balances across all open revolving accounts. If you have data to the contrary, by all means, please share it as it would greatly benefit the community.

To quote a famous member of this community, "Every so often, Fico apologists throw in their "datasets", "research showed", "aliens", but it's all just gobbledygook". In the end, the massive score hit is a huge disappointment no matter how you slice it.

Re: Data points - Auto loan payoff. Big score drops

DoogieBall — Mon, 27 Feb 2023 00:59:18 GMT

First thing I'd like to say is thank you to all that replied. Through various searched threads on the forums, I realized that a score drop was inevitable. The climb from the 600s seemed like an eternity and getting to the 800s still causes much disbelief as I never thought I would break the 760 sweet spot.

@JoeRockhead I'll try to keep my datapoints concise mainly because once I start to overthink, I tend to forget what I may have written in a previous sentence. Hahha.

My big jumps in scores happened when my BK7 was off all the reports. If you refer to my sig, the scores I had before any of the early exclusions saw modest to huge jumps. Specifically EQ that jumped 135 points. The reason I mention that is I've read about "buckets" in scoring that affect BK and clean reports differently. Something to do with the internal algorithm favoring the BK7/13 in scoring. I may be completely wrong in my understanding. This may be a different discussion entirely. Lol

During the two years post BK7, I applied for 1 credit card which bumped me down a few points. I did AZEO as best as I could and managed to get my scores into the 840-850 range. Not sure if this has any bearing on why there was a relatively high drop but plenty of people with more knowledge of FICO could enlighten me and I would greatly be appreciative.

All in all "In the end, the massive score hit is a huge disappointment no matter how you slice it."

Re: Data points - Auto loan payoff. Big score drops

SweetCreditObsession — Mon, 27 Feb 2023 01:08:25 GMT

@JoeRockhead wrote:
@Beefy1212 wrote:
@JoeRockhead wrote:
As many times as I've seen this happen, and understand that it's just a fact that you get penalized for not having an open loan, credit mix, using your credit, managing different types of debt, etc, etc... Taking such a large hit to scores just makes no sense, at all. But, good for you, and congratulations on your payoff!
@JoeRockhead @AdkinsYou don't actually get a penalty for no active loan, and as long as the loan is on your report satisfies the credit mix bonus, you also do not lose credit age, and the loan will continue to age until it falls off your report in 10 years (or 7 with bads)

What happens is loans have an analog to credit card utilization. Active loans get a significant score boost below 9.5% remaining balance. When you finish your loan there is no penalty you simply stop getting a bonus. I know some might say that is semantics but it is not. Depending on your remaining balance it is possible your score will increase paying a loan from a very high remaining % of balance in relation to starting amount to zero.
Geez, just when I was confident in going to bed last night thinking I had all the bases covered with the whole etc, etc...thing. I wake up to find out that sadly, I was mistaken. To be clear, the intention of my post was to say in essence 'hey @DoogieBall, no matter what cockamamie antecedents may exist, it's a bummer your scores took that kind of massive hit, I can relate and my condolences, but never the less, good for you for paying off the loan'.

While it's true you do get a boost in your score (and we're talking about FICO8 here) when your balance goes under 9% (I think 8.9% is the widely accepted threshold), I find it highly unlikely, and think we can agree, that Mr. or Mrs, or Miss @DoogieBall got a 58, 60 and 64 point bump, or bonus in their scores at that moment in time. If I had to guess, I'd say it was more in the 30+- range. with that said, it would also have to be considered that their scores also increased as the % of loan balance diminished over time until said time it was paid in full, as there are other factors involved during that time as well, such as their file/other accounts aging further, other account balance factors, etc, etc...

Perhaps they will chime in and let us know what kind of score bump they initially got (if they noted it) so that future generations of MyFICOers can have more DPs to consider as further evidence, or pontificate, whatever the case may be. Regardless, It's been pretty well documented, and widely acknowledged on these threads that there is strong evidence to substantiate a FICO penalty exists for having no open installment loan, just as there is a penalty for having 0 balances across all open revolving accounts. If you have data to the contrary, by all means, please share it as it would greatly benefit the community.

To quote a famous member of this community, "Every so often, Fico apologists throw in their "datasets", "research showed", "aliens", but it's all just gobbledygook". In the end, the massive score hit is a huge disappointment no matter how you slice it.

🤣 love that second to last sentence!

Re: Data points - Auto loan payoff. Big score drops

Beefy1212 — Tue, 28 Feb 2023 03:19:57 GMT

@JoeRockhead wrote:
@Beefy1212 wrote:
@JoeRockhead wrote:
As many times as I've seen this happen, and understand that it's just a fact that you get penalized for not having an open loan, credit mix, using your credit, managing different types of debt, etc, etc... Taking such a large hit to scores just makes no sense, at all. But, good for you, and congratulations on your payoff!
@JoeRockhead @AdkinsYou don't actually get a penalty for no active loan, and as long as the loan is on your report satisfies the credit mix bonus, you also do not lose credit age, and the loan will continue to age until it falls off your report in 10 years (or 7 with bads)

What happens is loans have an analog to credit card utilization. Active loans get a significant score boost below 9.5% remaining balance. When you finish your loan there is no penalty you simply stop getting a bonus. I know some might say that is semantics but it is not. Depending on your remaining balance it is possible your score will increase paying a loan from a very high remaining % of balance in relation to starting amount to zero.
Geez, just when I was confident in going to bed last night thinking I had all the bases covered with the whole etc, etc...thing. I wake up to find out that sadly, I was mistaken. To be clear, the intention of my post was to say in essence 'hey @DoogieBall, no matter what cockamamie antecedents may exist, it's a bummer your scores took that kind of massive hit, I can relate and my condolences, but never the less, good for you for paying off the loan'.

While it's true you do get a boost in your score (and we're talking about FICO8 here) when your balance goes under 9% (I think 8.9% is the widely accepted threshold), I find it highly unlikely, and think we can agree, that Mr. or Mrs, or Miss @DoogieBall got a 58, 60 and 64 point bump, or bonus in their scores at that moment in time. If I had to guess, I'd say it was more in the 30+- range. with that said, it would also have to be considered that their scores also increased as the % of loan balance diminished over time until said time it was paid in full, as there are other factors involved during that time as well, such as their file/other accounts aging further, other account balance factors, etc, etc...

Perhaps they will chime in and let us know what kind of score bump they initially got (if they noted it) so that future generations of MyFICOers can have more DPs to consider as further evidence, or pontificate, whatever the case may be. Regardless, It's been pretty well documented, and widely acknowledged on these threads that there is strong evidence to substantiate a FICO penalty exists for having no open installment loan, just as there is a penalty for having 0 balances across all open revolving accounts. If you have data to the contrary, by all means, please share it as it would greatly benefit the community.

To quote a famous member of this community, "Every so often, Fico apologists throw in their "datasets", "research showed", "aliens", but it's all just gobbledygook". In the end, the massive score hit is a huge disappointment no matter how you slice it.

I agree it is a huge disappointment, it should be a bonus you successfully paid off a years long committment. I was simply referring that the loss is not from credit mix or history, and my example of loan balances being an analog to credit card balances was to explain the why and how of a point loss for a zero balance, I see so many post where people believe a closed/paid account disappears into the ether seeing anything that remotely looks like they are implying that gets the auto response. At the end of the day the loss of a bonus and a penalty for the average user makes no difference, my main point was the change is from how utilization is factored not a loss of credit mix/history. Even saying the penalty is from no open installment is just another way of saying changes in utilization.

Re: Data points - Auto loan payoff. Big score drops

Creditsen — Fri, 31 May 2024 00:03:56 GMT

I agree it is a huge disappointment, it should be a bonus you successfully paid off a years long committment.

I agree, as well! You should be very proud paying off the loan 6 months early! I've been paying down my Auto Loan with a bit extra off of the principal each month and now I'm a bit disappointed to know how my score will likely take a dive because of it.

Re: Data points - Auto loan payoff. Big score drops

DaWhole9 — Mon, 03 Jun 2024 22:32:07 GMT

This is interesting. I built my score from 590 to 816. Around 805 or so I bought a car. It grew to 816 over time. After 2 years out of the 5 year loan I traded it in and got another car so I still have an open loan...

Are we saying that when I pay this off, I may get hit with a 30-60 point score drop? Mine didnt increase more than a few points and to be honest I think it was more to do with inquiries dropping off than it was to do with the car loan.

Re: Data points - Auto loan payoff. Big score drops

pizzadude — Mon, 03 Jun 2024 22:58:45 GMT

@DaWhole9 wrote:
This is interesting. I built my score from 590 to 816. Around 805 or so I bought a car. It grew to 816 over time. After 2 years out of the 5 year loan I traded it in and got another car so I still have an open loan...

Are we saying that when I pay this off, I may get hit with a 30-60 point score drop? Mine didnt increase more than a few points and to be honest I think it was more to do with inquiries dropping off than it was to do with the car loan.

Yes, if your only open installment loan is marked as closed / paid, you may see a score drop. I had this happen a few years ago, but didn't lose anything close to 60 points, if I recall it was closer to 25ish points.

Re: Data points - Auto loan payoff. Big score drops

CreditCuriosity — Mon, 03 Jun 2024 22:45:12 GMT

@pizzadude wrote:
@DaWhole9 wrote:
This is interesting. I built my score from 590 to 816. Around 805 or so I bought a car. It grew to 816 over time. After 2 years out of the 5 year loan I traded it in and got another car so I still have an open loan...

Are we saying that when I pay this off, I may get hit with a 30-60 point score drop? Mine didnt increase more than a few points and to be honest I think it was more to do with inquiries dropping off than it was to do with the car loan.
Yes, if your only open installment loan is marked as closed / paid, you may see a score drop. I had this happen a few years ago, but lose anything close to 60 points, if I recall it was closer to 25ish points.

Yep just bought a new car few months ago other loan was paid what about 50% off sold and paid off and got new auto loan pegged at 100% took around 18-25 points on a very thick credit report although scores still remain above 800. Points come back soon enough. Granted I still have other installment loans as well in my case

Re: Data points - Auto loan payoff. Big score drops

Thomas_Thumb — Tue, 04 Jun 2024 01:20:21 GMT

@DoogieBall wrote:
Hey everyone! I fortunately was able to pay off my 60 month auto loan 6 months early. Here are the resultant FICO credit score drops. Much higher than I expected and maybe this will help other people.

EQ: 850 -> 792 -58pts
EX: 828 -> 768 -60pts
TU: 844 -> 780 -64pts

Congrats on the loan payoff.

Impressive score drops! Worthy of a gold star. Those drops would be record breakers if the only thing different on your reports is the closed loan. Typical impact is 30 points. Never over 40.

I suspect something else changed as well when scores were pulled. A new account reporting or an increase in revolving utilization? Could a card have gone over 50% UT and AG UT gone over 10%?

I saw a +40 point drop when my only open loan, a mortgage, closed. However, the large drop was primarily due to elevated utilization levels when the loan closed and scores were pulled.

Re: Data points - Auto loan payoff. Big score drops

cashcardscore — Sun, 07 Jul 2024 20:36:00 GMT

FICO needs to adjust the algorithm used to compute scores with installment loans. Once you repay an installment loan you should see a score increase "congrats on repaying the loan" (that is what we are supposed to due). Say 30 point increase that lowers every month without an installment loan. Lets not screw outselves over for always having an open installment loan.

When I repayed both of my auto loans I lost around 40 points each time. So not fair.

Common FICO, fix this.

Re: Data points - Auto loan payoff. Big score drops

IsambardPrince — Sat, 20 Jul 2024 08:37:38 GMT

@Adkins wrote:
@DoogieBall wrote:
Hey everyone! I fortunately was able to pay off my 60 month auto loan 6 months early. Here are the resultant FICO credit score drops. Much higher than I expected and maybe this will help other people.

EQ: 850 -> 792 -58pts
EX: 828 -> 768 -60pts
TU: 844 -> 780 -64pts
Unless you have another reporting loan (school, mortgage, maybe personal), FICO penalizes your score without an open loan reporting. It is possible to get back to where you were with time though. Congratulations on your payoff! Finances over FICO.

Dave Ramsey does call it the "I love debt." score. It rewards you for being indebted, sometimes to the point of foolishly and horrendously indebted, to the point of instability. The worse you do to yourself, the higher the score gets.

The whole point of it is to reward being in debt and then maybe some other lenders see that you pay on your debt so they want to give you some debt.

I don't think that normal people worry much about FICO score fluctuations unless it gets so bad that they either can't get the financial services they want, or the living situation they need. Other than that, it goes up it goes down. It didn't really do much for me at 806, and I didn't die obviously when it was 496, and I'm still here at 700 again.

There's really basically only one reason you'd have to worry about a low FICO score. If it affects something you need to be doing (it doesn't always.) or if it gets so bad that you can do that thing, but only at subprime or predatory interest rates. Usually, not going in debt for dumb reasons is better than worrying about a percentage point on a car loan.

A score "drop" to 780-790 still qualifies as "vanity score" territory. You'll still get the best terms so why are you worried?

As to the 496, that was before my bankruptcy several years ago. The 496 didn't lead to financial ruin, it was the result of financial ruin.

But the bankruptcy discharge got rid of the financial ruin, and for all intents and purposes, my life went on much like it did before I took on all of that horrible debt in the first place, regardless of what a three digit credit score said or not.

Really terrible FICO scores are a symptom of a diseased financial picture, but then again, really high scores tend to be like that too.

Ever known someone who was working 80 hours a week to keep all the banks from suing him but had a 800+ FICO score? Yeah. Shouldn't have bought a boat!

Did you know that governments have credit ratings too? Even the US federal government, which is in so much debt it will never see the light of day again, has a really great credit score. It's all about making sure the minimum payments go in on time.

The biggest difference between government credit ratings and ours is that governments don't "die" unless something truly terrible happens.

Until then, they can always come up with more income by printing, taxing, it's the same thing really.

But while that works for them, it can't work for you, so you should watch what you're going into debt for and ask how this will improve or affect your life, not watching a score like a hawk.

Re: Data points - Auto loan payoff. Big score drops

Thomas_Thumb — Mon, 22 Jul 2024 21:00:23 GMT

@DoogieBall wrote:
Hey everyone! I fortunately was able to pay off my 60 month auto loan 6 months early. Here are the resultant FICO credit score drops. Much higher than I expected and maybe this will help other people.

EQ: 850 -> 792 -58pts
EX: 828 -> 768 -60pts
TU: 844 -> 780 -64pts

@DoogieBall

Any updated score data you can share post loan closure?

I'd be surprised if the OP didn't see a 25 to 30 point rebound after 1-2 months unless revolving utilization has increased significantly and stayed elevated.

As mentioned upthread, I had 850 F8 and F9 scores prior to paying off my mortgage per a 3B report. EX F9 dropped to 842 when revolving UT increased. (AG at 11%, high card 54%). Soon thereafter my only open loan, a mortgage, showed as paid and closed. Next update my EX F9 score dropped to 806 with high card at 54% with AG at 13%.

A month later EX Fico 9 score updated again thru Wells Fargo and score showed 849. Why? Primarily due to pay off of the high UT card and reduction of AG UT to under 3%. However, aging of the newly closed loan may have helped as well.

In any case, it would be interesting to see some additional data points from the OP. A 60 point drop should not be sustainable due to loan closure alone.

Re: Data points - Auto loan payoff. Big score drops

DoogieBall — Sat, 27 Jul 2024 01:22:19 GMT

It took much longer to bounce back. Maybe 10 months isn't that long in the big picture but it sure felt like it.

I think it was TU that got as low as 774, From what I can remember, the average TU over the past couple years was around 770-780. It hadn't broken 800 until today (07/26) when I checked.

EQ never dropped below 792 and stayed roughly 805 or so.

EX has been moving around between 776 and 796

The only other data points I can give in the past 18 months is that I've been at 1/24.

I tried doing AZEO as much as I could. Most of the time I think I was getting penalized for the $0 balance reporting.

No lates, loans, mortgage and the only credit I applied was for the new Amex Gold which luckily was approved.

I did get a 15k Chase auto CLI and an Amex 10k CLI a month ago.

Hope that helps

Re: Data points - Auto loan payoff. Big score drops

Thomas_Thumb — Sat, 27 Jul 2024 02:27:12 GMT

Thanks for the update. I would suggest AZE2 with small balance reporting. Often there is no penalty for AZE2 vs AZE1 if you have 5 or more cards. On the other hand, AZ typically causes a stiff, 15-25 point, penalty.