Best utilization for installment loans

[folks19]

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I've read on this forum that it's reccomend to keep utilization on installments down to 8.9%.

Is 8.9% the actual recommended amount, or is it even better if I can pay it down to lower than that?

[chiefone4u]

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@folks19 wrote:

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I've read on this forum that it's reccomend to keep utilization on installments down to 8.9%.

Is 8.9% the actual recommended amount, or is it even better if I can pay it down to lower than that?

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A score boost has been seen by several people at the 8.9% threshold. You are unlikely to see another score boost with a lower percentage reporting.

Once the loan is paid off (if you don't have another installment loan) you will lose points -- known as the "no recent installment loan" penalty. 

[folks19]

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@chiefone4u wrote:

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@folks19 wrote:

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I've read on this forum that it's reccomend to keep utilization on installments down to 8.9%.

Is 8.9% the actual recommended amount, or is it even better if I can pay it down to lower than that?

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A score boost has been seen by several people at the 8.9% threshold. You are unlikely to see another score boost with a lower percentage reporting.

Once the loan is paid off (if you don't have another installment loan) you will lose points -- known as the "no recent installment loan" penalty. 

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Will I be gaining less if I pay ot to below 8.9%?

[SouthJamaica]

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@folks19 wrote:

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I've read on this forum that it's reccomend to keep utilization on installments down to 8.9%.

Is 8.9% the actual recommended amount, or is it even better if I can pay it down to lower than that?

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An aggregate installment utilization percentage of 9% or less will optimize your FICO 8 and 9 scores in that department. It might make a slight difference to get it below 5% but the evidence of that is very thin.

[Anonymous]

In my opinion it’s not a penalty when you pay it off. If you choose to have installment activity, then you are rewarded for it. If not, then you’re not rewarded.

You are rewarded even more as you go below the thresholds of 65% and 10% (<64.5% & <9.5%). Once you pay it off, you have no installment activity to be evaluated and rewarded for, so you lose the bonus points.

Same thing with revolving activity: if you are not using your revolvers, they cannot evaluate your management of it, so you’re given no points ("AZ penalty"); however if you have at least a dollar, you do get points; but as your utilization and balances increase, the award of points decreases.

[Anonymous]

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@Anonymous wrote:

In my opinion it’s not a penalty when you pay it off. If you choose to have installment activity, then you are rewarded for it. If not, then you’re not rewarded.

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I get that it can be seen as a glass half full vs glass half empty argument, but couldn't the same be said about essentially all parts/sectors of the Fico pie?  I mean, the amounts owed portion of a Fico score is only "worth" X number of points on any given profile (as is every slice of the pie) so is it possible to achieve all points available in that sector without an open loan?  If the answer is yes, I think your argument is solid.  If the answer is no, I think the counter argument holds water.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

In my opinion it’s not a penalty when you pay it off. If you choose to have installment activity, then you are rewarded for it. If not, then you’re not rewarded.

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I get that it can be seen as a glass half full vs glass half empty argument, but couldn't the same be said about essentially all parts/sectors of the Fico pie?  I mean, the amounts owed portion of a Fico score is only "worth" X number of points on any given profile (as is every slice of the pie) so is it possible to achieve all points available in that sector without an open loan?  If the answer is yes, I think your argument is solid.  If the answer is no, I think the counter argument holds water.

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@Anonymous Good points but no I do not believe that the same can be said for all parts of the pie. 

Again in my opinion, you are only rewarded for your actions; likewise you're only penalized for your actions.

Therefore an inquiry is a penalty because by your action you lose points. In contrast, until you acquire a balance for installment or revolving, you don't earn any points from the respective balances scoring factors; but if you take action and put a balance there, you are rewarded, if you take action and put too big of a balance, then you are penalized from not only the balance scoring factor, but also the utilization and potentially other scoring factors. JMHO, but some of the example scorecards seem to support my position.

Edited to include other scoring factors. 

[Anonymous]

Are you talking about credit mix, amounts owed (related to an installment loan) or both?

Also it's important to clarify that when someone pays off an almost-paid-off (under 9%) installment loan, they aren't losing points for not having an open installment loan; credit mix is still satisfied from having the [now closed] loan on their credit report.  They are losing points from the Amounts Owed sector of the Fico pie.

[Anonymous]

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@Anonymous wrote:

Are you talking about credit mix, amounts owed (related to an installment loan) or both?

Also it's important to clarify that when someone pays off an almost-paid-off (under 9%) installment loan, they aren't losing points for not having an open installment loan; credit mix is still satisfied from having the [now closed] loan on their credit report.  They are losing points from the Amounts Owed sector of the Fico pie.

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@Anonymous Great question, I was referring to the Amounts Owed category, specifically the Balances scoring factor, but I have edited my response to also note that utilization and other scoring factors come in to play.

You are absolutely correct when someone closes a loan, the loss, or at least the majority of the loss, results from the Amounts Owed category. That's what I meant by if the amount owed in the aggregate is $0, then you would get zero points (or whatever other constant is used).

However with a $1 balance, you are > $0 and under 10%. You are therefore awarded however many more points by balances and utilization. Go above 10% and you're awarded less, go above 65% and you're awarded even less (for utilization, for balances we don't know the thresholds yet).

There is a possibility of loss in fact from Mix from the revolver:loan ratio scoring factor, but definitely not from the Mix diversity scoring factor. 

You are right to caution people because many people think it results from the diversity scoring factor in Mix, which it does not, because as you point out, closed loans contribute to the Mix diversity scoring factor.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

In my opinion it’s not a penalty when you pay it off. If you choose to have installment activity, then you are rewarded for it. If not, then you’re not rewarded.

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I get that it can be seen as a glass half full vs glass half empty argument, but couldn't the same be said about essentially all parts/sectors of the Fico pie?  I mean, the amounts owed portion of a Fico score is only "worth" X number of points on any given profile (as is every slice of the pie) so is it possible to achieve all points available in that sector without an open loan?  If the answer is yes, I think your argument is solid.  If the answer is no, I think the counter argument holds water.

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@Anonymous I apologize. I did not give an answer to your question, so I'm posting again to do so.

No, it is not possible to achieve all points available by all scoring factors in the Amounts Owed category without an open loan. Without an open loan, you do not have the opportunity to earn the points for having an aggregate installment balance over $0 from Balances, nor the points from having Installment Utilization under 10%.

That does not preclude someone from hitting 850, it simply means the profile could be better and have a higher buffer. Or in the case of someone under 850, they can earn more points.