topic Re: Personal Loan payoff - score change? in Understanding FICO® Scoring

Personal Loan payoff - score change?

expatCanuck — Fri, 12 Nov 2021 21:03:37 GMT

I have a new mortgage (refi) from which my score has started to recover, and, for another month, a personal loan. Final payment next month.

Thick, clean file. Rarely does CC util exceed 1%.

When the loan is paid off, should I anticipate a score change and, if so. which way?

Re: Personal Loan payoff - score change?

SouthJamaica — Sat, 13 Nov 2021 12:37:20 GMT

@expatCanuck wrote:
I have a new mortgage (refi) from which my score has started to recover, and, for another month, a personal loan. Final payment next month.

Thick, clean file. Rarely does CC util exceed 1%.

When the loan is paid off, should I anticipate a score change and, if so. which way?

Assuming your mortgage was much, much bigger than your personal loan, the payoff of the personal loan should have no effect.

But if that assumption is incorrect, in order to answer your question I would need to know the current balances and original loan amounts of all your open installment loans.

Re: Personal Loan payoff - score change?

expatCanuck — Sat, 13 Nov 2021 19:59:42 GMT

Thanks, SJ.

Personal Loan was $15K, taken out two years ago next month (3-year loan paid off in two).

Mortgage is ~420K of which ~418 remain.

Re: Personal Loan payoff - score change?

folks19 — Sat, 13 Nov 2021 20:30:31 GMT

If that's your only non-mortgage installment loan, paying it off won't of a positive affect on your score, but you may not lose points either. It depends on other factors. If you do have other non-mortgage installment loan, than it depends on the the loan amounts and remaining balance. If, for example, you are paying off a small loan with a much larger loan amount, then that should only have a positive affect, but if the loan you're paying off is large compaired to the other, it may have a negative affect. In a nut shell.

Re: Personal Loan payoff - score change?

folks19 — Sat, 13 Nov 2021 20:33:16 GMT

@SouthJamaica wrote:
@expatCanuck wrote:
I have a new mortgage (refi) from which my score has started to recover, and, for another month, a personal loan. Final payment next month.

Thick, clean file. Rarely does CC util exceed 1%.

When the loan is paid off, should I anticipate a score change and, if so. which way?
Assuming your mortgage was much, much bigger than your personal loan, the payoff of the personal loan should have no effect.

But if that assumption is incorrect, in order to answer your question I would need to know the current balances and original loan amounts of all your open installment loans.

I don't believe this is the case. I understood that mortgage loans are not calculated with other loans. By paying off yout only non-mortgage installment laon, you have 1 less active credit type, if that was the only non-mortgage installment laon.

Re: Personal Loan payoff - score change?

expatCanuck — Sat, 13 Nov 2021 21:26:11 GMT

I believe this to be the case as well.

But I think that having two different credit types is sufficient/optimal for the FICO score.

In this case, I'll still have revolving credit cards and a non-revolving mortgage.

Re: Personal Loan payoff - score change?

SouthJamaica — Sun, 14 Nov 2021 14:17:15 GMT

@expatCanuck wrote:
Thanks, SJ.

Personal Loan was $15K, taken out two years ago next month (3-year loan paid off in two).

Mortgage is ~420K of which ~418 remain.

Then I expect the payoff of the personal loan to have no effect whatsoever on your scores, or to have a minor positive effect.

Re: Personal Loan payoff - score change?

Anonymous — Sun, 14 Nov 2021 17:05:13 GMT

I don't believe this is the case. I understood that mortgage loans are not calculated with other loans. By paying off yout only non-mortgage installment laon, you have 1 less active credit type, if that was the only non-mortgage installment laon.

I'm not sure about that. We paid off our mortgage 8 years ago and I've achieved an 850 with just one active personal loan. When that loan was paid off, my score dropped.

Re: Personal Loan payoff - score change?

SouthJamaica — Sun, 14 Nov 2021 18:20:01 GMT

@Anonymous wrote:
I don't believe this is the case. I understood that mortgage loans are not calculated with other loans. By paying off yout only non-mortgage installment laon, you have 1 less active credit type, if that was the only non-mortgage installment laon.
I'm not sure about that. We paid off our mortgage 8 years ago and I've achieved an 850 with just one active personal loan. When that loan was paid off, my score dropped.

Yes, that's what I would expect.

Re: Personal Loan payoff - score change?

800scoreplease — Mon, 15 Nov 2021 00:29:35 GMT

I just lost 5 points when a student loan I had was paid off. The only other loans I have are a mortgage and another student loan with a small balance. Clean thick file.

Re: Personal Loan payoff - score change?

folks19 — Mon, 15 Nov 2021 17:27:24 GMT

@Anonymous wrote:
I don't believe this is the case. I understood that mortgage loans are not calculated with other loans. By paying off yout only non-mortgage installment laon, you have 1 less active credit type, if that was the only non-mortgage installment laon.
I'm not sure about that. We paid off our mortgage 8 years ago and I've achieved an 850 with just one active personal loan. When that loan was paid off, my score dropped.

@Anonymous Not sure what you thought I said. Didn't you say that you lost points when you paid off you installment loan? In general, the more types of credit you have, the better, but that doesn't mean you can't have a perfect score withour every type of credit.

Re: Personal Loan payoff - score change?

Kforce — Mon, 15 Nov 2021 23:53:46 GMT

@expatCanuck wrote:
I have a new mortgage (refi) from which my score has started to recover, and, for another month, a personal loan. Final payment next month.

Thick, clean file. Rarely does CC util exceed 1%.

When the loan is paid off, should I anticipate a score change and, if so. which way?

Paying off your loans saves money, and is in my opinion far more important than a few Fico points.

Celebrate the loan being paid off and ignore what ever score change there is.

Re: Personal Loan payoff - score change?

Anonymous — Tue, 16 Nov 2021 21:43:28 GMT

I paid off several personal loans and noticed no real change to any of my scores. However, the benefit was getting rid of some very high interest debt.

Once I started focusing on credit card debt, I noticed a consistent increase in score as they were paid down though.

Re: Personal Loan payoff - score change?

Anonymous — Tue, 16 Nov 2021 23:43:59 GMT

Yup. I must have read it wrong. Sorry about that.

But as you noted, it's definitely true that one does not need a mortgage or auto loan to get to 850. Any installment loan will do.

Re: Personal Loan payoff - score change?

folks19 — Sun, 21 Nov 2021 17:55:58 GMT

@Anonymous wrote:
Yup. I must have read it wrong. Sorry about that.

But as you noted, it's definitely true that one does not need a mortgage or auto loan to get to 850. Any installment loan will do.

But having more types of credit may help you get your score to 850 faster. Not saying that anyone needs an 850 score, and it's probably not wise to get a mortgage just for score purposes, but I'm just throwing that out there.