topic Re: Effect of paying off only installment loan in Understanding FICO® Scoring

Effect of paying off only installment loan

Junejer — Wed, 08 May 2024 02:28:34 GMT

A few weeks ago, I paid off my car loan. I had been keeping it at $101 for the past year. That allowed me to hit high F8 scores of 850, 850 and 849. After applying for some new cards and seeing my scores drop as a result, I decided to pay off the loan. The results are as follows:

EQ is down -27 points from 838 to 811. EX is down -20 from 838 to 818. TU is down -23 from 825 to 802.

I will expect further temporary declines as I made a major purchase and will have a card nearly maxed out for a few months. That's not germain to this conversation, however.

Re: Effect of paying off only installment loan

keekers — Wed, 08 May 2024 03:13:23 GMT

So basically always have an open installment loan? Is that the takeaway here?

Re: Effect of paying off only installment loan

SouthJamaica — Wed, 08 May 2024 03:26:15 GMT

@keekers wrote:
So basically always have an open installment loan? Is that the takeaway here?

The takeaway is that having one's aggregate installment loan utilization percentage paid down to 9% or less of the loan amount(s) gives a boost to one's FICO 8 and 9 scores, and that having no open loan causes a drop in FICO 8 and 9 scores.

Re: Effect of paying off only installment loan

keekers — Wed, 08 May 2024 04:22:06 GMT

@SouthJamaica wrote:
@keekers wrote:
So basically always have an open installment loan? Is that the takeaway here?
The takeaway is that having one's aggregate installment loan utilization percentage paid down to 9% or less of the loan amount(s) gives a boost to one's FICO 8 and 9 scores, and that having no open loan causes a drop in FICO 8 and 9 scores.

I assume it doesn't matter what type (e.g. Auto Loan, Mortgage, Student Loan, etc.)?

Re: Effect of paying off only installment loan

JoeRockhead — Wed, 08 May 2024 09:11:59 GMT

Curious as to whether or not you're planning to stay loan free? Aside from the fact that it can be done, it would be interesting to see how long it takes you to get back to 850 without an open loan, and once you've paid down that major purchase.

Re: Effect of paying off only installment loan

SouthJamaica — Wed, 08 May 2024 12:01:32 GMT

@keekers wrote:
@SouthJamaica wrote:
@keekers wrote:
So basically always have an open installment loan? Is that the takeaway here?
The takeaway is that having one's aggregate installment loan utilization percentage paid down to 9% or less of the loan amount(s) gives a boost to one's FICO 8 and 9 scores, and that having no open loan causes a drop in FICO 8 and 9 scores.
I assume it doesn't matter what type (e.g. Auto Loan, Mortgage, Student Loan, etc.)?

I can say that it doesn't matter as between auto loans, personal loans, and savings secured loans. But I can't answer as to mortgages and student loans. I hope @Thomas_Thumb can weigh in on that.

Re: Effect of paying off only installment loan

TrapLine — Wed, 08 May 2024 12:41:42 GMT

Offering my condolences as the exact same thing for almost the exact same number of points hit me this April 2024.

The mortgage was paid off last June 2023 coupled with the vehicle loan being zeroed I sit at 802 Fico 08 EX.

Now, just a bottom feeding low life in the world of credit!!!

Re: Effect of paying off only installment loan

Thomas_Thumb — Wed, 08 May 2024 20:56:08 GMT

There is no magic 9% for a mortgage. I went from over 50% B/L to 1% B/L with NO scoreboost anywhere along the way. I did see an impact when the mortgage, my only open loan, closed.

For those who care to read reason code lists you will find codes specific to mortgages. I can't speak to student loans but, I don't recall reason codes specific to that type.

Re: Effect of paying off only installment loan

keekers — Wed, 08 May 2024 14:50:35 GMT

Fascinating. So it sounds like mortgages are "bucketed" separately from other loan types.

Re: Effect of paying off only installment loan

SouthJamaica — Wed, 08 May 2024 15:03:22 GMT

@TrapLine wrote:
Offering my condolences as the exact same thing for almost the exact same number of points hit me this April 2024.

The mortgage was paid off last June 2023 coupled with the vehicle loan being zeroed I sit at 802 Fico 08 EX.

Now, just a bottom feeding low life in the world of credit!!!

Well in the "world of credit" maybe, but to my mind your accomplishment is exemplary

I find the no-open-loan penalty, and its credit card counterpart, the all zero penalty, to be completely illogical.

I would love to be debt free one day, and would be glad to accept whatever 'penalties' FICO algorithms decide to dish out.

Re: Effect of paying off only installment loan

AzCreditGuy — Wed, 08 May 2024 16:17:07 GMT

@SouthJamaica wrote:
@TrapLine wrote:
Offering my condolences as the exact same thing for almost the exact same number of points hit me this April 2024.

The mortgage was paid off last June 2023 coupled with the vehicle loan being zeroed I sit at 802 Fico 08 EX.

Now, just a bottom feeding low life in the world of credit!!!
Well in the "world of credit" maybe, but to my mind your accomplishment is exemplary

I find the no-open-loan penalty, and its credit card counterpart, the all zero penalty, to be completely illogical.

I would love to be debt free one day, and would be glad to accept whatever 'penalties' FICO algorithms decide to dish out.

Debt is the key to a 850, right? In my case when I got rid of my SOFI loan., not only did my scores go down, I was also hit with CFA code BS...Because Fico only sees the big banks as true lenders and any new modern lender is a CFA bank

Re: Effect of paying off only installment loan

Horseshoez — Wed, 08 May 2024 17:29:26 GMT

@AzCreditGuy wrote:
@SouthJamaica wrote:
@TrapLine wrote:
Offering my condolences as the exact same thing for almost the exact same number of points hit me this April 2024.

The mortgage was paid off last June 2023 coupled with the vehicle loan being zeroed I sit at 802 Fico 08 EX.

Now, just a bottom feeding low life in the world of credit!!!
Well in the "world of credit" maybe, but to my mind your accomplishment is exemplary

I find the no-open-loan penalty, and its credit card counterpart, the all zero penalty, to be completely illogical.

I would love to be debt free one day, and would be glad to accept whatever 'penalties' FICO algorithms decide to dish out.
Debt is the key to a 850, right? In my case when I got rid of my SOFI loan., not only did my scores go down, I was also hit with CFA code BS...Because Fico only sees the big banks as true lenders and any new modern lender is a CFA bank

I don't think I would go that far; there are plenty of folks who are more or less debt free and have 850 scores. During the two month stretch when I had 850s on my FICO 8s I didn't have either a mortgage or a vehicle loan; all I had was about $20 reported from one or two credit cards (total CL of about $15,000).

Re: Effect of paying off only installment loan

Kforce — Wed, 08 May 2024 18:03:29 GMT

I float around 835-840 scores with no installment and

not practicing Azeo or Aze2.

So for me ~10 points, maybe.

Don't really know if I would be a 850 anyway.

I figure scores are high enough and have no plan on getting an SSL.

Re: Effect of paying off only installment loan

Thomas_Thumb — Wed, 08 May 2024 22:10:30 GMT

I have one loan (closed 11/2020) and 5 open cards on file and one AU card. Scores as of 3/2024 were:

Fico 8: EX 850 TU 844 EQ 845

Fico 9: EX 850

BC Fico 8: EQ 860

Scores were pulled on different days. Either one or two cards were reporting balances depending on pull date with aggregate UT between 1% and 2%.

I enjoy being debt free and happily accept any score penalty associated with no open loans. I don't consider monthly PIF credit card balances as true debt. I treat charges like cash payments with some lag time.

Re: Effect of paying off only installment loan

NoHardLimits — Wed, 08 May 2024 21:55:56 GMT

@Thomas_Thumb wrote:
I have one loan (closed 11/2020) and 5 open cards on file. Scores as of 3/2024 were:

Fico 8: EX 850 TU 844 EQ 845
Fico 9: EX 850
BC Fico 8: EQ 860
Scores were pulled on different days. Either one or two cards were reporting balances depending on pull date with aggregate UT between 1% and 2%.

I enjoy being debt free and happily accept any score penalty associated with no open loans. I don't consider monthly PIF credit card balances as true debt. I treat charges like cash payments with some lag time.

I feel exactly the same way. I have no open loans, with 2 closed mortgages still reporting. Scores pulled within the past 2 weeks are:

Fico 8: EX 850 TU 841 EQ 841

Fico 9: EX 846

BC Fico 8: EQ 866

I practice AZEn, where n = less than half of my revolvers.

[NB: I was approved for a new credit card last week, so my scores will drop a little bit after the new account starts reporting.]

Re: Effect of paying off only installment loan

Junejer — Fri, 10 May 2024 20:16:03 GMT

@keekers wrote:
So basically always have an open installment loan? Is that the takeaway here?

According to the FICO algorithms, yes, until your accounts age to the point where it negates the effect of not having one. I was just sick of playing the game. I was only charged $6 in interest over the past year, so not bad, but was sick of it nevertheless.

Re: Effect of paying off only installment loan

Junejer — Fri, 10 May 2024 20:18:31 GMT

@JoeRockhead wrote:
Curious as to whether or not you're planning to stay loan free? Aside from the fact that it can be done, it would be interesting to see how long it takes you to get back to 850 without an open loan, and once you've paid down that major purchase.

I don't have any plans for a new loan in the forseeable future. That would be an interesting test, though I might hold onto the 0% interest for as long as possible.

Re: Effect of paying off only installment loan

Junejer — Fri, 10 May 2024 20:19:38 GMT

@TrapLine wrote:
Offering my condolences as the exact same thing for almost the exact same number of points hit me this April 2024.

The mortgage was paid off last June 2023 coupled with the vehicle loan being zeroed I sit at 802 Fico 08 EX.

Now, just a bottom feeding low life in the world of credit!!!

Re: Effect of paying off only installment loan

Junejer — Fri, 10 May 2024 20:21:45 GMT

@SouthJamaica wrote:
@TrapLine wrote:
Offering my condolences as the exact same thing for almost the exact same number of points hit me this April 2024.

The mortgage was paid off last June 2023 coupled with the vehicle loan being zeroed I sit at 802 Fico 08 EX.

Now, just a bottom feeding low life in the world of credit!!!
Well in the "world of credit" maybe, but to my mind your accomplishment is exemplary

I find the no-open-loan penalty, and its credit card counterpart, the all zero penalty, to be completely illogical.

I would love to be debt free one day, and would be glad to accept whatever 'penalties' FICO algorithms decide to dish out.

That part!

And, that part too!

Re: Effect of paying off only installment loan

Thomas_Thumb — Sat, 11 May 2024 00:18:30 GMT

@Junejer wrote:
@JoeRockhead wrote:
Curious as to whether or not you're planning to stay loan free? Aside from the fact that it can be done, it would be interesting to see how long it takes you to get back to 850 without an open loan, and once you've paid down that major purchase.

I don't have any plans for a new loan in the forseeable future. That would be an interesting test, though I might hold onto the 0% interest for as long as possible.

It took me 2 months after closure of my mortgage for EX Fico 9 score to reach 849 and EX Fico 8 to reach 848. I didn't regain 850 on EX until 5 months after closure.

It's now been 3 years since closure and my EQ and TU F8 scores have yet to regain 850. They appear to have reached a plateau at 844-845 . No data on F9 EQ or TU.

When my closed mortgage drops off in 7 years my Fico 8/9 scores will likely be limited to the 810-820 range. However, F8/F9 probably won't be offered then so I'll never know.