topic Re: PAID OFF HOUSE & SCORE WENT DOWN?!?! in Understanding FICO® Scoring

PAID OFF HOUSE & SCORE WENT DOWN?!?!

Anonymous — Mon, 24 Feb 2014 18:15:23 GMT

I don't understand this. We recently paid off our house and car and now our credit score went down. We also paid off our ONLY credit card. Yes, we have an excellent credit score, but it should have gone UP even more, should it not? We have not applied for any other credit at all. What's up?

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

Anonymous — Mon, 24 Feb 2014 18:52:13 GMT

An open installment loan may help your scores.

Installment loans don't factor into utilization in the usual way, so they're not typically a drag while open.

Also, if you have a single CC showing a $0 balance, there might be an issue with whether letting it show a small balance will actually help you. There are various threads around here that get into the nuances of this issue.

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

Kratos-TM — Thu, 27 Feb 2014 16:00:10 GMT

Unfortunately FICO likes an installment loan in the "mix of credit" category. On top of that, you can't have a zero balance on a CC even if you only have 1.

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

bobebob — Sat, 01 Mar 2014 16:23:19 GMT

@Kratos-TM wrote:
Unfortunately FICO likes an installment loan in the "mix of credit" category. On top of that, you can't have a zero balance on a CC even if you only have 1.

If they just recently paid off the installment loan, wouldn't it still show until the 10 year mark?

Does the loan have to be open to contribute to a "good credit mix"?

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

coterotie — Sun, 02 Mar 2014 16:28:26 GMT

Just an FYI, when I reported a zero balance across all my CC, it nailed my score by 50+ points.

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

Anonymous — Sun, 02 Mar 2014 16:59:37 GMT

Paying down utilization on revolving is treated differently than on installment.

For example, if you take out an auto loan or mortgage, your utilization in the early months or years will be very high, because you haven't really made much of a dent in paying it back.

This is not considered a negative, except in the sense of taking a short-term hit for a hard pull, new TL, lowered AAoA, along with possible DTI issues.

Once these things stabilize, then an installment loan may be seen as a positive. The same is true of revolving, but only if you keep the utilization low.

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

Peter1142 — Thu, 06 Mar 2014 13:26:01 GMT

Actually FICO does consider installment loan balances (expect mortgage, IIRC) vs amount borrowed. But separately and to a lesser extent to revolving util. I read the weight was increased in FICO 08 models.

FICO also considers your overall debt owed.

Unfortunately FICO is kind of stupid that a paid off loan typically drops a score. Any manual review will see it as a big positive.

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

fungoman — Thu, 06 Mar 2014 16:06:18 GMT

I had this happen to me while we were building our new house that we closed on in January of 2013. We sold our old house in August of 2012 and I had the first wave of approval to start our new house before our old house closed. My scores from then to final rate lock approval in December/January dropped 40 points all due to the mortgage being paid off. Nothin else changed on my report.

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

bobebob — Thu, 06 Mar 2014 22:30:53 GMT

@Peter1142 wrote:
Actually FICO does consider installment loan balances (expect mortgage, IIRC) vs amount borrowed. But separately and to a lesser extent to revolving util. I read the weight was increased in FICO 08 models.

FICO also considers your overall debt owed.

Unfortunately FICO is kind of stupid that a paid off loan typically drops a score. Any manual review will see it as a big positive.

This tracks with what I see on my FICO scores from time to time:

"The remaining balance on your installment loans is too high.

Your FICO ® Score weighs the balances of your installment loans (such as auto or student loans) against the original loan amounts. In general, when you first obtain an installment loan your balance is high, and as you pay this loan down, the balance decreases."

This is from TU FICO from Walmart last month.

The only non-mortgage installment I have is for a car loan. I don't know what information is provided about the loan when they report, but they should be able to figure out that I pay ahead on the principal every month. The balance is considerably lower than it would be if I had just been making the regular payments as agreed.

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

Anonymous — Tue, 11 Mar 2014 02:01:36 GMT

I signed up for MyFICO to try to see my scores get up to 825 or better. Now I am worried that they may tank instead. I paid off one mortgage in 2010, and the other one in 2012, after which I concentrated on my car loans. I just paid off all three in February, and had sat back to watch my score climb. So far, it has not budged. I am trying to leave a small balance on each of my cards as of closing dates, but that is not as easy as I thought. I don't have any plans for any new major loans, so apparently I have maxed out and can expect my scores to drop. I think I will give it until June, then call it quits.

Re: PAID OFF HOUSE & SCORE WENT DOWN?!?!

Anonymous — Tue, 11 Mar 2014 23:54:28 GMT

I just paid off a discover student loan I took out in 2009. I used my tax refund (this February)to pay it off and my score dropped more than 17 points .
It was my oldest account. For me it's not a big deal because last November I applied for four credit cards (discover it, chase freedom,capitalone quicksilver and amex BCE).i got all four cards with my highest limit with discover at 7500. So I don't see myself applying for any cards in the next 2 yrs. so I'm cool with the 17 point drop. Those 4 cards will age in two years and I will be ok b/c that's when I plan to buy a house....... My calculation is that in two years my scores will recover and even add some more. Now I'm at 670 fico.