Experian Defies Logic

[Anonymous]

I recently sold my manufacturing business of 20 years.  With the proceeds from the sale I decided to pay off my primary residence.  (I did not run out and buy a Lamborghini) Normally, this would be viewed as the right thing and no reason for someone’s credit worthiness to drop, right?  On the contrary, the note was satisfied by being paid in full, and now I have a very large asset that is free and clear.  This asset could be used as collateral for a loan, thus increasing my credit worthiness.  A logical person would think so, but not Experian!  My credit score dropped 56 points! (I have screen shots showing on October 15th my note was satisfied with my bank.  On that same date, my credit score dropped 56 point.  Too bad we cannot post images!)

This defies all logic in my opinion.  An interesting question is presented by Experian when they place the verbiage on the screenshot that says “What now?”  What now?  Perhaps I will call the company that I now believe is saying that I am a higher credit risk because I live in my house that is paid for.  However, there is NO WAY IN SWELL I can speak with anyone at Experian.  I have spent hours trying call Experian and speak with someone.

Follow this logic: 

1. A) I no longer have a mortgage. 
2. B) I have more disposable income (to get a loan and buy that Lamborghini, using the house as collateral?) 

I would think so, but if I did want to obtain a loan I would now pay a higher interest rate to a lender because my rating is no longer “exceptional”.  This is not my fault. This is 100% Experian’s fault that I would pay a higher interest rate!

Here’s another scenario: What if I paid this home off to bank the proceeds in order to move and buy another primary residence?  My APR would be higher!  Just look at the verbiage in the screenshot.  It literally states “You are now viewed as more of a credit risk to creditors”

Here is where Experian falls short as a credit reporting agency:

1. Experian does not consider a person’s income
2. Experian does not consider a person’s assets
3. Experian does not consider a mortgage payoff as a good thing
4. Experian does not decipher credit card usage data properly
5. Experian does not answer to the consumer

Does anyone have advice?  Better yet in the words of Experian "What Now?"

[SouthJamaica]

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@Anonymous wrote:

I recently sold my manufacturing business of 20 years.  With the proceeds from the sale I decided to pay off my primary residence.  (I did not run out and buy a Lamborghini) Normally, this would be viewed as the right thing and no reason for someone’s credit worthiness to drop, right?  On the contrary, the note was satisfied by being paid in full, and now I have a very large asset that is free and clear.  This asset could be used as collateral for a loan, thus increasing my credit worthiness.  A logical person would think so, but not Experian!  My credit score dropped 56 points! (I have screen shots showing on October 15th my note was satisfied with my bank.  On that same date, my credit score dropped 56 point.  Too bad we cannot post images!)

This defies all logic in my opinion.  An interesting question is presented by Experian when they place the verbiage on the screenshot that says “What now?”  What now?  Perhaps I will call the company that I now believe is saying that I am a higher credit risk because I live in my house that is paid for.  However, there is NO WAY IN SWELL I can speak with anyone at Experian.  I have spent hours trying call Experian and speak with someone.

Follow this logic: 

1. A) I no longer have a mortgage. 
2. B) I have more disposable income (to get a loan and buy that Lamborghini, using the house as collateral?) 

I would think so, but if I did want to obtain a loan I would now pay a higher interest rate to a lender because my rating is no longer “exceptional”.  This is not my fault. This is 100% Experian’s fault that I would pay a higher interest rate!

Here’s another scenario: What if I paid this home off to bank the proceeds in order to move and buy another primary residence?  My APR would be higher!  Just look at the verbiage in the screenshot.  It literally states “You are now viewed as more of a credit risk to creditors”

Here is where Experian falls short as a credit reporting agency:

1. Experian does not consider a person’s income
2. Experian does not consider a person’s assets
3. Experian does not consider a mortgage payoff as a good thing
4. Experian does not decipher credit card usage data properly
5. Experian does not answer to the consumer

Does anyone have advice?  Better yet in the words of Experian "What Now?"

---

It's not Experian, it's FICO. FICO penalizes us for (a) not having any open loans and (b) not having any revolving balances.

Recently, a group of FICO insiders appeared in this forum for questions and answers, admitted that these penalties exist, and gave us their explanations for them, which I do not find very convincing.

For example :

"The data shows that going from low installment loan utilization to no installment loan balances reported (and thus 0% installment loan utilization) is slightly more indicative of future risk."
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score-Experts-Ask-us-anything/m-p/6137485#M176981

As to your specific questions:

Experian [FICO] does not consider a person’s income

True

Experian [FICO] does not consider a person’s assets

True

Experian [FICO] does not consider a mortgage payoff as a good thing

True

Experian [FICO] does not decipher credit card usage data properly

Agreed

Experian [FICO] does not answer to the consumer

True. They work for lending institutions.

Does anyone have advice?  Better yet in the words of Experian "What Now?"

Yes. You can maximize your scores by doing the following, which are of no economic consequence to you but will vastly improve your scores:

(a) Take out a small share secured loan with a credit union like NFCU or Penfed and pay it down immediately to 9% of the original loan amount; that will cover you on the installment loan penalty.

(b) Let one bank card report a small balance each month before you pay it off; that will cover you on the revolving account penalty [make sure the card you use to report a balance is not a Chase card]

[Anonymous]

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@Anonymous wrote:

I recently sold my manufacturing business of 20 years.  With the proceeds from the sale I decided to pay off my primary residence.  (I did not run out and buy a Lamborghini) Normally, this would be viewed as the right thing and no reason for someone’s credit worthiness to drop, right?  On the contrary, the note was satisfied by being paid in full, and now I have a very large asset that is free and clear.  This asset could be used as collateral for a loan, thus increasing my credit worthiness.  A logical person would think so, but not Experian!  My credit score dropped 56 points! (I have screen shots showing on October 15th my note was satisfied with my bank.  On that same date, my credit score dropped 56 point.  Too bad we cannot post images!)

This defies all logic in my opinion.  An interesting question is presented by Experian when they place the verbiage on the screenshot that says “What now?”  What now?  Perhaps I will call the company that I now believe is saying that I am a higher credit risk because I live in my house that is paid for.  However, there is NO WAY IN SWELL I can speak with anyone at Experian.  I have spent hours trying call Experian and speak with someone.

Follow this logic: 

1. A) I no longer have a mortgage. 
2. B) I have more disposable income (to get a loan and buy that Lamborghini, using the house as collateral?) 

I would think so, but if I did want to obtain a loan I would now pay a higher interest rate to a lender because my rating is no longer “exceptional”.  This is not my fault. This is 100% Experian’s fault that I would pay a higher interest rate!

Here’s another scenario: What if I paid this home off to bank the proceeds in order to move and buy another primary residence?  My APR would be higher!  Just look at the verbiage in the screenshot.  It literally states “You are now viewed as more of a credit risk to creditors”

Here is where Experian falls short as a credit reporting agency:

1. Experian does not consider a person’s income
2. Experian does not consider a person’s assets
3. Experian does not consider a mortgage payoff as a good thing
4. Experian does not decipher credit card usage data properly
5. Experian does not answer to the consumer

Does anyone have advice?  Better yet in the words of Experian "What Now?"

---

@Anonymous I hate to tell you, but it's not Experian or FICO's fault with all due respect. It is your fault for not educating yourself about how credit works before you took your actions. It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you

you are a higher risk with the mortgage paid than with it open. The data shows that and the reason is, you're much more likely to be able to acquire a larger loan due to having one less big monthly obligation, imho.

Stated differently, are you more likely to get a bigger loan if you have a mortgage with monthly payments or if you don't have a mortgage with monthly payments? Well, if you don't have a mortgage and that additional monthly obligation increasing dti, lenders are more apt to give you a greater amount of credit/loan due to your lower obligations; however, when you have greater monthly obligations, they are less likely to extend as much additional credit to you.

So the fact that you have greater access to credit makes you a greater risk. Is that not logical to you?

And you were not penalized for closing the mortgage, I might point out, you were rewarded for having a greatly paid down mortgage. When you no longer have that, the reward is repossessed, basically. 

You're rewarded for showing installment activity, you're rewarded more as the B/L is reduced; however once it's paid off and closed, that B/L reduction reward disappears. They gave you the reward for years now, but your financial situation has changed now. They're not going to continue to reward you for an almost paid off mortgage when you no longer have one. 

Credit scores are not allowed to consider income and assets, that would be discriminatory. Lenders can and will consider it though. 

yes a paid off mortgage is considered to be a good thing by Experian and if the tradeline were deleted you would see an additional drop in score, but a nearly paid off mortgage is considered a whole heck of a lot better. 

you'll have to explain what you mean about the credit card issue that's ambiguous. 

Experian's answers to it shareholders, the FTC, CFPB, and, since it answers to it shareholders and the majority of its business is from lenders, they definitely do their best to a please lenders not consumers. However they still must follow laws and they do have to answer to us to a limited degree due to laws that were made to protect us. 

as SJ said the SSL strategy can return most points. 

[Anonymous]

@Anonymous 

FICO scores relate to credit WORTHINESS.  Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts

2. I have a large asset for a second mortgage now [  at a higher rate :- (    ]

3. I have disposable income that I did not have before

How is this not logical? 

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you"  --However true this may be, is it logical?  A person with more debt is a good credit risk?  I am no longer looking to keep my credit score up.  That point is moot for me.  I am trying to change the way the system works, not "play the game".

[SanDiegoCredit]

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@SouthJamaica wrote:

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@Anonymous wrote:

I recently sold my manufacturing business of 20 years.  With the proceeds from the sale I decided to pay off my primary residence.  (I did not run out and buy a Lamborghini) Normally, this would be viewed as the right thing and no reason for someone’s credit worthiness to drop, right?  On the contrary, the note was satisfied by being paid in full, and now I have a very large asset that is free and clear.  This asset could be used as collateral for a loan, thus increasing my credit worthiness.  A logical person would think so, but not Experian!  My credit score dropped 56 points! (I have screen shots showing on October 15th my note was satisfied with my bank.  On that same date, my credit score dropped 56 point.  Too bad we cannot post images!)

This defies all logic in my opinion.  An interesting question is presented by Experian when they place the verbiage on the screenshot that says “What now?”  What now?  Perhaps I will call the company that I now believe is saying that I am a higher credit risk because I live in my house that is paid for.  However, there is NO WAY IN SWELL I can speak with anyone at Experian.  I have spent hours trying call Experian and speak with someone.

Follow this logic: 

1. A) I no longer have a mortgage. 
2. B) I have more disposable income (to get a loan and buy that Lamborghini, using the house as collateral?) 

I would think so, but if I did want to obtain a loan I would now pay a higher interest rate to a lender because my rating is no longer “exceptional”.  This is not my fault. This is 100% Experian’s fault that I would pay a higher interest rate!

Here’s another scenario: What if I paid this home off to bank the proceeds in order to move and buy another primary residence?  My APR would be higher!  Just look at the verbiage in the screenshot.  It literally states “You are now viewed as more of a credit risk to creditors”

Here is where Experian falls short as a credit reporting agency:

1. Experian does not consider a person’s income
2. Experian does not consider a person’s assets
3. Experian does not consider a mortgage payoff as a good thing
4. Experian does not decipher credit card usage data properly
5. Experian does not answer to the consumer

Does anyone have advice?  Better yet in the words of Experian "What Now?"

---

It's not Experian, it's FICO. FICO penalizes us for (a) not having any open loans and (b) not having any revolving balances.

Recently, a group of FICO insiders appeared in this forum for questions and answers, admitted that these penalties exist, and gave us their explanations for them, which I do not find very convincing.

For example :

"The data shows that going from low installment loan utilization to no installment loan balances reported (and thus 0% installment loan utilization) is slightly more indicative of future risk."
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score-Experts-Ask-us-anything/m-p/6137485#M176981

As to your specific questions:

Experian [FICO] does not consider a person’s income

True

Experian [FICO] does not consider a person’s assets

True

Experian [FICO] does not consider a mortgage payoff as a good thing

True

Experian [FICO] does not decipher credit card usage data properly

Agreed

Experian [FICO] does not answer to the consumer

True. They work for lending institutions.

Does anyone have advice?  Better yet in the words of Experian "What Now?"

Yes. You can maximize your scores by doing the following, which are of no economic consequence to you but will vastly improve your scores:

(a) Take out a small share secured loan with a credit union like NFCU or Penfed and pay it down immediately to 9% of the original loan amount; that will cover you on the installment loan penalty.

(b) Let one bank card report a small balance each month before you pay it off; that will cover you on the revolving account penalty [make sure the card you use to report a balance is not a Chase card]

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Can you briefly explain why not a Chase card? Thanks.

[Anonymous]

Because if you pay it to zero balance it off cycle updates; it’s OK to use you just have to be aware of that.

[Anonymous]

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@Anonymous wrote:

@Anonymous 

FICO scores relate to credit WORTHINESS.  Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts

2. I have a large asset for a second mortgage now [  at a higher rate :- (    ]

3. I have disposable income that I did not have before

How is this not logical? 

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you"  --However true this may be, is it logical?  A person with more debt is a good credit risk?  I am no longer looking to keep my credit score up.  That point is moot for me.  I am trying to change the way the system works, not "play the game".

---

@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.

1. you are still being rewarded for that paid off mortgage,  just not as much as you were when it was almost paid off. 

2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.

3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application. 

to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.

No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. 

[rostrow416]

FICO scores don't account for income.  Lenders do.  FICO scores will only give a measure of how you have handled credit.  Lenders have different criteria to determine the terms of the credit they will extend to you, FICO scores are not the end all be all.  

[Anonymous]

That’s very true the score is only one part of credit. we’re talking about how to maximize score, not how to maximize credit.

this is the Understanding FICO Scoring subforum; we do have a general credit subforum, too

[Anonymous]

Score is only one component of determining creditworthiness.