topic Re: Fico Score Drop after paying off loan in Understanding FICO® Scoring

Fico Score Drop after paying off loan

Anonymous — Tue, 18 Aug 2015 18:32:31 GMT

I'm a little confused as to how FICO actually works.

About 6 months ago, I took out an unsecured loan from Discover Bank for $15,000 to pay for some home improvements. I made all payments on time and made additional principle payments each month to reduce the term of the loan from 60 months to 30 months.

After 7 or 8 payments, I decided to pay the loan off. (It was a simple interest loan with no prepayment penalty). I sent them a lump sum for the actual payoff amount and payed it down to 0.00.

I received an alert a few days later showing that the loan had been paid off. My FICO score DROPPED from 786 to 775. I would have thought it would have at least stayed the same or gone up. But I really can't figure out why it dropped. There have been no other events affecting me and never any late or missed payments.

Any ideas why this would be the case?

Re: Fico Score Drop after paying off loan

Anonymous — Tue, 18 Aug 2015 18:29:29 GMT

Wow, i had the same thing happened but with my CCs. Paid them off and got the alert but no points went down, they remained the same...weird!!!

Re: Fico Score Drop after paying off loan

Revelate — Tue, 18 Aug 2015 22:26:01 GMT

FICO 8 counts two things with installment loans:

1) Installment line being open

2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989

Re: Fico Score Drop after paying off loan

taxi818 — Tue, 18 Aug 2015 22:30:18 GMT

@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989

yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.

Re: Fico Score Drop after paying off loan

Revelate — Tue, 18 Aug 2015 22:37:03 GMT

@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.

If you prepay it it's even better than that. Read through the thread if you haven't, it's an exceptional FICO reindeer game.

Re: Fico Score Drop after paying off loan

Anonymous — Tue, 18 Aug 2015 23:24:14 GMT

Thanks to all of you for enlightening me. I never would have thought things would work that way.

I appreciate the education.

Re: Fico Score Drop after paying off loan

Anonymous — Wed, 19 Aug 2015 16:10:23 GMT

@Revelate wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
If you prepay it it's even better than that. Read through the thread if you haven't, it's an exceptional FICO reindeer game.

Would this also apply for a Lowes or HD project loan?

Lowes - 5.99% for 84 months - Would scores drop if pay off in 6 months for a $5k expense? Lowes rep said no penalty for paying off early, but what about FICO 8?

Thanks

Re: Fico Score Drop after paying off loan

Revelate — Wed, 19 Aug 2015 16:37:07 GMT

@Anonymous wrote:
@Revelate wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
If you prepay it it's even better than that. Read through the thread if you haven't, it's an exceptional FICO reindeer game.
Would this also apply for a Lowes or HD project loan?

Lowes - 5.99% for 84 months - Would scores drop if pay off in 6 months for a $5k expense? Lowes rep said no penalty for paying off early, but what about FICO 8?

Thanks

Depends how it reports honestly; if installment, it'll follow the usual FICO 8 rules. Generally speaking do what's smart financially and worry about FICO later; in this case you can sort it with the baby secured installment loan and prepaying goodness.

The reason why Alliant works so well for this is they push the payment date WAY out into the future, my next payment is due sometime in 2018. Other lenders worked similar, but there are some notable exceptions too like DCU. If you start paying ahead on the Lowes loan, and you see that it keeps pushing your due date out further, then pay it down to some small amount but not completely off and then giggle at the FICO goodness.

Nothing intrinsic about Alliant in this case, could do with any lender that does this (so far in my experience of prepaying installment debt, WFDS, USAA, Alliant, SDFCU all do and only DCU does not) and if I had a non-trivial installment loan I'd absolutely do it that way as it appears to be aggregate utilization.

Not sure on future plan, but if I get whacked hard with my new mortgage, I may do some dumb things regarding that but I'd need to do that trick on something like 50K worth of loans and not sure that really makes much sense. Might be able to do cash out auto refinance on my car with Alliant, just got a pre-approval for them at 2.5% hah.

Re: Fico Score Drop after paying off loan

Anonymous — Wed, 19 Aug 2015 16:57:11 GMT

@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
If you prepay it it's even better than that. Read through the thread if you haven't, it's an exceptional FICO reindeer game.
Would this also apply for a Lowes or HD project loan?

Lowes - 5.99% for 84 months - Would scores drop if pay off in 6 months for a $5k expense? Lowes rep said no penalty for paying off early, but what about FICO 8?

Thanks
Depends how it reports honestly; if installment, it'll follow the usual FICO 8 rules. Generally speaking do what's smart financially and worry about FICO later; in this case you can sort it with the baby secured installment loan and prepaying goodness.

The reason why Alliant works so well for this is they push the payment date WAY out into the future, my next payment is due sometime in 2018. Other lenders worked similar, but there are some notable exceptions too like DCU. If you start paying ahead on the Lowes loan, and you see that it keeps pushing your due date out further, then pay it down to some small amount but not completely off and then giggle at the FICO goodness.

Nothing intrinsic about Alliant in this case, could do with any lender that does this (so far in my experience of prepaying installment debt, WFDS, USAA, Alliant, SDFCU all do and only DCU does not) and if I had a non-trivial installment loan I'd absolutely do it that way as it appears to be aggregate utilization.

Not sure on future plan, but if I get whacked hard with my new mortgage, I may do some dumb things regarding that but I'd need to do that trick on something like 50K worth of loans and not sure that really makes much sense. Might be able to do cash out auto refinance on my car with Alliant, just got a pre-approval for them at 2.5% hah.

Nice!! In that case, I guess i'll stick to the $1000/month payments for 4 months ($4k) and then drag the last $1k to $700 payment, $350 payment, $175 payment, then do a little over the minimum until pay in full. Hows that?

Re: Fico Score Drop after paying off loan

Revelate — Thu, 20 Aug 2015 00:32:33 GMT

@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
If you prepay it it's even better than that. Read through the thread if you haven't, it's an exceptional FICO reindeer game.
Would this also apply for a Lowes or HD project loan?

Lowes - 5.99% for 84 months - Would scores drop if pay off in 6 months for a $5k expense? Lowes rep said no penalty for paying off early, but what about FICO 8?

Thanks
Depends how it reports honestly; if installment, it'll follow the usual FICO 8 rules. Generally speaking do what's smart financially and worry about FICO later; in this case you can sort it with the baby secured installment loan and prepaying goodness.

The reason why Alliant works so well for this is they push the payment date WAY out into the future, my next payment is due sometime in 2018. Other lenders worked similar, but there are some notable exceptions too like DCU. If you start paying ahead on the Lowes loan, and you see that it keeps pushing your due date out further, then pay it down to some small amount but not completely off and then giggle at the FICO goodness.

Nothing intrinsic about Alliant in this case, could do with any lender that does this (so far in my experience of prepaying installment debt, WFDS, USAA, Alliant, SDFCU all do and only DCU does not) and if I had a non-trivial installment loan I'd absolutely do it that way as it appears to be aggregate utilization.

Not sure on future plan, but if I get whacked hard with my new mortgage, I may do some dumb things regarding that but I'd need to do that trick on something like 50K worth of loans and not sure that really makes much sense. Might be able to do cash out auto refinance on my car with Alliant, just got a pre-approval for them at 2.5% hah.

Nice!! In that case, I guess i'll stick to the $1000/month payments for 4 months ($4k) and then drag the last $1k to $700 payment, $350 payment, $175 payment, then do a little over the minimum until pay in full. Hows that?

Sounds fine but you may be able to do better if they push the date out; play with it and see, as if they do, just pay down to $20 or whatever and then kick $1 every six months or whatever until the due date starts coming up after which you can pay it off... but we're talking years from now if you get that ability

Re: Fico Score Drop after paying off loan

Anonymous — Thu, 20 Aug 2015 06:23:51 GMT

@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.

Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!

Re: Fico Score Drop after paying off loan

Revelate — Thu, 20 Aug 2015 06:45:28 GMT

@Anonymous wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!

Alliant share secured 5 year, $500 loan.

Pay $460-480 right back. Pay $1 every 6 months or w/e.

Re: Fico Score Drop after paying off loan

Anonymous — Thu, 20 Aug 2015 06:54:43 GMT

@Revelate wrote:
@Anonymous wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!
Alliant share secured 5 year, $500 loan.

Pay $460-480 right back. Pay $1 every 6 months or w/e.

How is that working for you? Does it report that you made an on time payment each month on your credit report?

Was hoping for more of a one year thing. Looking to boost my credit score for my next app spree next year. Would you still recommend me to get it?

Thanks for your quick response, by the way!!

Re: Fico Score Drop after paying off loan

Revelate — Thu, 20 Aug 2015 07:06:38 GMT

@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!
Alliant share secured 5 year, $500 loan.

Pay $460-480 right back. Pay $1 every 6 months or w/e.
How is that working for you? Does it report that you made an on time payment each month on your credit report?

Was hoping for more of a one year thing. Looking to boost my credit score for my next app spree next year. Would you still recommend me to get it?

Thanks for your quick response, by the way!!

Yes, and why would you want 1 year when you can get near 5? Longer is better.

Re: Fico Score Drop after paying off loan

Anonymous — Thu, 20 Aug 2015 07:11:46 GMT

@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!
Alliant share secured 5 year, $500 loan.

Pay $460-480 right back. Pay $1 every 6 months or w/e.
How is that working for you? Does it report that you made an on time payment each month on your credit report?

Was hoping for more of a one year thing. Looking to boost my credit score for my next app spree next year. Would you still recommend me to get it?

Thanks for your quick response, by the way!!
Yes, and why would you want 1 year when you can get near 5? Longer is better.

Seems like a lot to maintain, lol.

Btw, does it take a HP to apply?

And was that "yes" a "yes" for all my questions?

Re: Fico Score Drop after paying off loan

Revelate — Thu, 20 Aug 2015 07:10:47 GMT

@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!
Alliant share secured 5 year, $500 loan.

Pay $460-480 right back. Pay $1 every 6 months or w/e.
How is that working for you? Does it report that you made an on time payment each month on your credit report?

Was hoping for more of a one year thing. Looking to boost my credit score for my next app spree next year. Would you still recommend me to get it?

Thanks for your quick response, by the way!!
Yes, and why would you want 1 year when you can get near 5? Longer is better.
Seems like a lot to maintain, lol.

And was that "yes" a "yes" for all my questions?

Yes

Re: Fico Score Drop after paying off loan

Anonymous — Thu, 20 Aug 2015 07:12:16 GMT

@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!
Alliant share secured 5 year, $500 loan.

Pay $460-480 right back. Pay $1 every 6 months or w/e.
How is that working for you? Does it report that you made an on time payment each month on your credit report?

Was hoping for more of a one year thing. Looking to boost my credit score for my next app spree next year. Would you still recommend me to get it?

Thanks for your quick response, by the way!!
Yes, and why would you want 1 year when you can get near 5? Longer is better.
Seems like a lot to maintain, lol.

And was that "yes" a "yes" for all my questions?
Yes

Thanks. Would you know if it takes an HP to apply?

Re: Fico Score Drop after paying off loan

Anonymous — Thu, 20 Aug 2015 13:48:44 GMT

@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!
Alliant share secured 5 year, $500 loan.

Pay $460-480 right back. Pay $1 every 6 months or w/e.
How is that working for you? Does it report that you made an on time payment each month on your credit report?

Was hoping for more of a one year thing. Looking to boost my credit score for my next app spree next year. Would you still recommend me to get it?

Thanks for your quick response, by the way!!
Yes, and why would you want 1 year when you can get near 5? Longer is better.
Seems like a lot to maintain, lol.

And was that "yes" a "yes" for all my questions?
Yes
Thanks. Would you know if it takes an HP to apply?

Like most loans, it should be a HP. I will definately try this.

Re: Fico Score Drop after paying off loan

Revelate — Thu, 20 Aug 2015 14:26:00 GMT

@Anonymous wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@Revelate wrote:
@Anonymous wrote:
@taxi818 wrote:
@Revelate wrote:
FICO 8 counts two things with installment loans:

1) Installment line being open
2) Utilization of said installment line(s).

Paying one off early or at all under FICO 8, yup, penalty. May be dumb but there's a cheap way to finesse that part of the algorithm, but if I were gold-plated anyway (read: north of 760) I wouldn't really worry about it.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/m-p/4055989#U4055989
yep learned this the hard way. need to keep some kind of installment loan open for best scores. But does not mean paying interest. Nice secured $5 a month loan should do the trick.
Woah woah woah. Where can I get a no interest, $5 payment per month loan?!

If this would improve my score, I'd be totally on board!
Alliant share secured 5 year, $500 loan.

Pay $460-480 right back. Pay $1 every 6 months or w/e.
How is that working for you? Does it report that you made an on time payment each month on your credit report?

Was hoping for more of a one year thing. Looking to boost my credit score for my next app spree next year. Would you still recommend me to get it?

Thanks for your quick response, by the way!!
Yes, and why would you want 1 year when you can get near 5? Longer is better.
Seems like a lot to maintain, lol.

And was that "yes" a "yes" for all my questions?
Yes
Thanks. Would you know if it takes an HP to apply?
Like most loans, it should be a HP. I will definately try this.

Actually Alliant does not HP for secured share loans, or at least did not when several of us setup the loans there. That information is roughly a year old.

Really hardly any downside of doing this other than tying up $80 (after you make the payback), the maintenance of the inactivity fee (has to be active at least once a year to avoid) and just having a hazy awareness of the date in the future from a payment perspective (like mine is October 2018 now, wish I'd found this trick earlier haha).

Oh and a new tradeline reporting /shrug.