The paid auto loan penalty.

[BallBounces]

Just some anecdotal information:

October 31: Experian FICO8 = 684

November 1: Experian FICO8 = 661

Auto loan was paid off three days ago, so there are now 0 open auto loans reflecting as of today.  There are two student loans open.  Many revolvers. 

Note, this auto loan had several 30 day lates, which demonstrates a dirty loan in good standing can still benefit your score.

This is one of the specific issues I take with FICO algorithims.  I am a much better credit risk when I have that loan open than when I pay it off.

THe kicker:  I will b e shopping for a new car loan soon.  I should have not paid the loan off 3 months early.

This was an irritating event.

[Tonya-E]

Hi @BallBounces @the penalty is wrapped in the ratio I think. I paid off my car in June. I also have student loans reporting. I received no penalty. I think it is because there was no significant change in my ratio of balance to the original balance of the loans. Your car may have been making your ratio lower because it was nearly paid off (when factored in with your student loan). That's my guess. I could be wrong. 

[BallBounces]

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@Tonya-E wrote:

Hi @BallBounces @the penalty is wrapped in the ratio I think. I paid off my car in June. I also have student loans reporting. I received no penalty. I think it is because there was no significant change in my ratio of balance to the original balance of the loans. Your car may have been making your ratio lower because it was nearly paid off (when factored in with your student loan). That's my guess. I could be wrong. 

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That makes a lot of sense, and could very well be.   My student loans  are effectively 100% to boot ...

Doesn't discount the fact that the score dropped dramatically JUST by paying off a debt commitment.  It's not a very advanced formula in this specific regard.

[Tonya-E]

@BallBounces I completely agree. It's not very friendly to paying off debt. The same goes for having your cards report all accounts zero. You get a penalty for that too. I am on a journey to pay off all my debt and I expect fluctuations because of it. I don't really understand it either. It seems it's designed for you to take on more debt to be successful. But knowing how it works, you can play the game moving forward to maneuver it when you need to. That's the upside.

[BallBounces]

Right, I am not new to this.  AZEO and <9 are well discussed.   I posted mostly for folks the remember and be aware of these nuances.  

The particular irony of my situation (paying off auto loan early ahead of securing an auto loan) was worth sharing I thought.

[jmw1]

I'm going to strongly disagree except I agree with you that the auto loan penalty does indeed exist when you payoff the auto loan.

If my credit score went from 684 to 661 in exchange for getting rid of a budget siphoning $500 car loan payment, I'll take it.

If my credit score went from 661 to 684 by adding a $500 car payment for 72 months, I won't do it. I'd much rather keep the $500/month for the next 6 years.

Since you had several lates on that car loan, it would appear that car loans are a strain to your budget. Since a car loan would be a strain to my budget as well, I stick with $5k cash cars that are so unfashionable that I'd give them names like "Old Bessie". I stick with reliable models like Corolla and Accord so I don't get stuck with big repair bills. I much rather take the hit on my credit score to keep that $500/month in my savings account. You can always recover most of those points back with an SSL without jeopardizing your finances. I also think you can follow AZEO just fine and keep great scores without a big installment payment.

[Anonymous]

I paid 4 loans off in July and my score dropped. Two weeks late it went back up. 

[Anonymous]

I paid my car off on Friday 11-13-2020 and my credit dropped 25 points today. 11-16-21. I cannot belive it. I thought this would increase my score. I'm so sad. I logged in excited today to see something good and was very disappointed.

[vertekal]

I had 2 open auto loans .. my truck which I was paying on perfectly, and a car that was charged off about a year ago.

I traded in the truck and when the bank reported $0, my EQ score dropped 16 points to 618. 

I settled and paid the charge off, and my EX dropped 24 points to 616. 

[Anonymous]

As a reminder to everyone, your profiles are very different. Even two profiles that appear to be similar can vary. Your score can fluctuate for a lot of reasons, that is why this forum is so great, it helps us become aware of what might trigger those fluctuations.

I also agree that the <9% penalty for installments and all 0 penalty are counterintuitive.

As BBounces mentioned, it helps for us to know what to tweak to use these hacks to our advantage.

I'm sorry for the points drop, but I am happy that you now own your car free and clear.