Student Loan Consolidation - Lowered My FICO score 42 points!

[Anonymous]

My FICO score in April 2018 was 827.  I consolidated my student loans in May.  My credit score thereafter dropped 42 points.  In my humble opinion this is capricious, arbitrary and egregious.  The justification provided for this is that "the balance on your mortgage loan is too high compared to your loan amount. Your FICO® Score looks at the balances of your mortgage and other installment loans (such as auto or student loans), against the original loan amounts. Generally, your balance is high when you first get an installment loan. As you pay the loan down, the balance decreases."    No other changes to my credit report exist, other than the credit inquiry by the company that consolidated my loan.  

The real word effect of this is that the mortgage interest rate that I will qualify for, as I am home shopping, will be higher.  Very disapointed.  

[Anonymous]

Welcome to MyFico, I certainly wish it was under happier circumstances for you. While I understand your disappointment, those learning about FICO scoring know that what you’ve described is quite predictable, thus neither arbitrary nor capricious. It certainly may have been shocking and seemed outstandingly bad, thus egregious, if you were unaware of the way FICO treats installment loans when they’re new as opposed to ones that have been paid down to some extent at the time you consolidated your student loans. The real world effect you’ve described is undoubtedly true, and a very good reason why we all must exercise due diligence and educate ourselves in all aspects of our financial lives to the utmost of our abilities. I wish you the best of luck in finding an acceptable mortgage, and everyone here will be more than happy to help you with any questions you may have.

[beutiful5678]

Your score also decreased because your AoYA (age of youngest account) decreased to zero. Once it reaches three months you should see it rebound some and more gains once it reaches six months.

[beutiful5678]

Also, I believe you only need a ~760 to get the best rates. Though FICO mortgage scores are measured differently than FICO 8 scores...

[Anonymous]

Thanks for the info

[Anonymous]

Thanks for the response and info.  What is most frustrating is that overall I'm in a much better financial position than I was in the begining of 2018: more income, more savings, less total number of loans to pay,  but my FICO score is significantly worse.  Clearly I'm putting too much weight behind the score.   Thanks again.  

[Anonymous]

OP—That’s the short term, and because you are in a better position financially, you will rebound rather quickly. As was pointed out, your new loan will age, payments on it will bring down the balance, and your overall debt to income ratio has decreased. All those things will benefit you moving forward toward a mortgage. If you also have revolving accounts, there are methods such as AZEO that can/will also help maximize your scores. And you are certainly correct to a degree, scores are important, but not everything. If you post in the section for mortgages/home loans, many professionals in that area often weigh in and provide great advice.