topic Re: Paid off $16K+ and penalized in Understanding FICO® Scoring

Paid off $16K+ and penalized

LXRM36 — Mon, 31 Jan 2022 19:46:56 GMT

So I'm working on bringing down debt piled up during the pandemic. I was able to pay off a loan last month I took out to start my business. Happened to make my final truck payment the same month. Results? -9, -6, and -5.

Simulator had a +5 to +15 boost for paying these loans off... be careful not to set your expectations off the simulator! Credit mix is not affected by this, and I have plenty of other debts still left to pay off. But overall debt is decreasing every month. I'm puzzled!

Sorry... had to vent.

Re: Paid off $16K+ and penalized

SouthJamaica — Mon, 31 Jan 2022 20:11:00 GMT

@LXRM36 wrote:
So I'm working on bringing down debt piled up during the pandemic. I was able to pay off a loan last month I took out to start my business. Happened to make my final truck payment the same month. Results? -9, -6, and -5.

Simulator had a +5 to +15 boost for paying these loans off... be careful not to set your expectations off the simulator! Credit mix is not affected by this, and I have plenty of other debts still left to pay off. But overall debt is decreasing every month. I'm puzzled!

Sorry... had to vent.

1 There is a penalty for all zero revolving balances.

2 There is a penalty for no open loans.

3 There is a penalty for having 10% or higher aggregate installment utilization percentage. This percentage can be increased when a nearly paid down loan is paid down to zero.

You haven't given us enough information to determine which of the above might have been at play.

Meanwhile congratulations on paying stuff down.

And btw don't pay attention to simulators, they are a joke.

Re: Paid off $16K+ and penalized

Anonymous — Mon, 31 Jan 2022 20:57:29 GMT

I paid off about 23k in credit card debt two weeks ago. Prior scores were between 650 & 690. Scores shot up to 740 - 760. EQ Score dropped 53pts this morning because the last two cards finally reported as paid off. Waiting for the other scores to follow.

Re: Paid off $16K+ and penalized

thornback — Mon, 31 Jan 2022 21:02:51 GMT

@Anonymous wrote:
I paid off about 23k in credit card debt two weeks ago. Prior scores were between 650 & 690. Scores shot up to 740 - 760. EQ Score dropped 53pts this morning because the last two cards finally reported as paid off. Waiting for the other scores to follow.

Welcome to the forums.

From where are you getting your EQ score? 53 points is far too great of a loss for simply paying off balances.

Re: Paid off $16K+ and penalized

RSX — Mon, 31 Jan 2022 21:03:12 GMT

sounds like you may have paid off your only remaining loans - which resulted in the score drop - nothing to worry about

here's where you arent being penalized - Interest on both loans!

keep paying down your debt and try to focus on the Interest $ saved, more than the score bouncing up and down

difficult i know - but it is better to have zero debt and a lower FICO score - then lots of debt and a High FICO score

Congrats on the large paydown

Re: Paid off $16K+ and penalized

LXRM36 — Mon, 31 Jan 2022 22:16:25 GMT

I'm gonna try to sort of reply to all 5 replies thus far here.

I'm with ya on the simulators. Joke.

I have multiple loans remaining open, including two auto loans, one mortgage, and a home improvement loan.

I have multiple revolving lines of credit, which I'm paying down, but even the ones I zero out, I'm buying a tank of gas or a week of groceries to keep the card active with a balance I pay off each month.

I have one late from 2015 that is going to fall off later this year.

My aggregate is definitely +10%, actually much higher. Again, coming down and no where near what it was in 2020.

I'm not overly concerned with the drop, it's just frustrating. I had one balance go up $36, and my score increased. I paid this loan off, my score dropped. I decreased a balance on one card $350, my score increased. 🤷🏻‍♂️

It's all just very confusing.

Re: Paid off $16K+ and penalized

expatCanuck — Mon, 31 Jan 2022 22:20:15 GMT

FICO does not take into account DTI -- at least, not sensibly (to me, anyway).

Paying off my personal loan last month (I still have a mortgage) resulted in a FICO 8 drop. But it's far more important to me that I have an extra few hundred each month to do with as I see fit.

Fair Isaac rationalizes this by pointing out the stats showing that folks with an actively managed loan are less likely to default than folks without one.

Whatevah.

Re: Paid off $16K+ and penalized

thornback — Mon, 31 Jan 2022 22:51:43 GMT

@LXRM36 wrote:
I'm gonna try to sort of reply to all 5 replies thus far here.

I'm with ya on the simulators. Joke.

I have multiple loans remaining open, including two auto loans, one mortgage, and a home improvement loan.

I have multiple revolving lines of credit, which I'm paying down, but even the ones I zero out, I'm buying a tank of gas or a week of groceries to keep the card active with a balance I pay off each month.

I have one late from 2015 that is going to fall off later this year.

My aggregate is definitely +10%, actually much higher. Again, coming down and no where near what it was in 2020.

I'm not overly concerned with the drop, it's just frustrating. I had one balance go up $36, and my score increased. I paid this loan off, my score dropped. I decreased a balance on one card $350, my score increased. 🤷🏻‍♂️

It's all just very confusing.

Your confusion is totally understandable. Look at the utilization of loans the same as your utilization with credit cards -- you have aggregate and individual and there are separate scoring thresholds specifically for loan utilization.

In this case, your aggregate loan utilization changed with your payoff. If you were to compare the aggregate utilization of your loans prior to the payoff to the aggregate util of the remaining open loans post payoff -- it's possible (likely) the utilzation increased. For example:

Loan 1: 7000/10000

Loan 2: 5000/15000

Loan 3: 500/5000

Aggregate: 12500/30000 41.66%

Payoff 1 of those loans:

Loan 1: 7000/10000

Loan 2: 5000/15000

Loan 3: 0/0

Aggregate: 12000/25000 48%

Payoff 2 of those loans:

Loan 1: 7000/10000

Loan 2: 0/0

Loan3: 0/0

Aggregate: 7000/10000 70%

Either of the 2 payoff scenarios results in increased aggregate loan utilization which could negatively affect scoring.

I cannot say why you saw an increase with a credit card balance increase of $36... It's possible the score increase had nothing at all to do with the balance increase and a separate event simply coincided with the new balance reporting. If you were alerted to a balance increase and that alert was tagged with a resulting score change, please understand that the reason of the alert is not necessarily the reason for the change in score. The alert triggering event (balance change) simply prompted an updated score be pulled and presented to you.

Debt payoff is a good thing. Definitely keep doing the good thing.

Re: Paid off $16K+ and penalized

expatCanuck — Mon, 31 Jan 2022 22:53:13 GMT

@thornback

Excellent write-up.

Oh, and I LOVE the tag on the BoA Americard in your sig. 👍

Re: Paid off $16K+ and penalized

thornback — Mon, 31 Jan 2022 22:59:32 GMT

@expatCanuck wrote:
@thornback
Excellent write-up.

TY!

@expatCanuck wrote:
Oh, and I LOVE the tag on the BoA Americard in your sig. 👍

haha... it's been a year and 1 month and i'm still really annoyed with myself for app'ing it. AND... to further twist the knife... i have no CLI button - it has not appeared... not even once. And I refuse to call them about it.

Re: Paid off $16K+ and penalized

expatCanuck — Tue, 01 Feb 2022 02:55:43 GMT

I was fortunate in that two years or so ago, BoA offered me a product change -- the Americard (not all that useful) to the Customized Reward card (more useful).

No new account, no hit to AAoA.

I only use the BoA Travel card for the occasional BT but, at 20 years, you better believe I'm keeping it alive.

Re: Paid off $16K+ and penalized

Anonymous — Wed, 02 Feb 2022 15:46:33 GMT

Credit karma is where the drop registered and when I clicked the "see why" it referenced the last two accounts. Myfico.com has not shown any drop so far. All my scores on myfico.com are still 740-760.

Re: Paid off $16K+ and penalized

thornback — Wed, 02 Feb 2022 18:35:25 GMT

@Anonymous wrote:
Credit karma is where the drop registered and when I clicked the "see why" it referenced the last two accounts. Myfico.com has not shown any drop so far. All my scores on myfico.com are still 740-760.

Ah... Vantage 3 scores... they tend to be a bit...volatile. I wouldn't worry about it too much so long as your FICOs remain in range.

Re: Paid off $16K+ and penalized

coldfusion — Wed, 02 Feb 2022 16:53:33 GMT

@thornback wrote:
Ah... Vantage 3 scores... they tend to be a bit...volitile. I wouldn't worry about it too much so long as your FICOs remain in range.

This. Vantage 3.0 scores are kind of a canary in a cave - they're notoriously volatile and if there's a big change researching as to what was behind it isn't a bad idea but it doesn't necessarily signal a change of similar scope to FICO or even Vantage 4.0 scores.

Re: Paid off $16K+ and penalized

LXRM36 — Thu, 03 Feb 2022 04:13:14 GMT

@thornback now THAT explanation makes sense. Thanks so much! I can definitely understand that thinking.

In other news, I mysteriously gained the 9 pts back from EQ today. 🤣

Everytime I start trying to make sense of it all, I just take a step back and keep paying things off.

Always appreciate the helpfulness in this forum! 👍🏻👍🏻 Thank you!

Re: Paid off $16K+ and penalized

disdreamin — Fri, 18 Feb 2022 18:01:47 GMT

@Anonymous wrote:
Paying off debt can cause an immediate drop in credit score, but it's only temporary! If these were some of your older debts, that could have played a role, but rest assured, your score will see a larger boost than dip with these debts paid off, it may just take a few months.

Not necessarily, unfortunately. I paid off a couple loans last summer and have not recoup'd those losses. My scores are still down around where they were when I paid off two installement loans and opened one new one. They have not rebounded at all over the past ~7-8 months. It'll be interesting to see how long it takes them to go back up.