Frustratingly Ridiculous!!!!

[VanderSnoot]

I get the frustration. The models are built around correlations, and correlation is not causation. I was shocked when I learned that your FICO scores go down when you pay off your mortgage: here you've gone and done exactly what the contract said, for 15 or 20 or 30 years, and the result is that you're considered more of a credit risk because you don't have an open installment? It seems that they could dig into the data a little harder and come up with better metrics.

The thing is, lenders do look harder at the data when making lending decisions. They don't decide based on score: they look at all the information they have for you and run their own calculations. We just don't have much insight into that data collection and internal calculations, so we complain about FICO scores that are more transparent.

Some people have good luck with goodwill letters, but it's definitely a slog. Other than that, there's nothing to do but garden: garden, garden, and when you're done, garden some more. Time heals all wounds. I found reading old posts here helpful: nothing like reading a post from 2010 about how they have derogs that won't fall off until 2012, and 2012 will never get here, and blah blah blah, to put it in perspective.

[nycfico]

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@VanderSnoot wrote:

I get the frustration. The models are built around correlations, and correlation is not causation. I was shocked when I learned that your FICO scores go down when you pay off your mortgage: here you've gone and done exactly what the contract said, for 15 or 20 or 30 years, and the result is that you're considered more of a credit risk because you don't have an open installment? It seems that they could dig into the data a little harder and come up with better metrics.

The thing is, lenders do look harder at the data when making lending decisions. They don't decide based on score: they look at all the information they have for you and run their own calculations. We just don't have much insight into that data collection and internal calculations, so we complain about FICO scores that are more transparent.

Some people have good luck with goodwill letters, but it's definitely a slog. Other than that, there's nothing to do but garden: garden, garden, and when you're done, garden some more. Time heals all wounds. I found reading old posts here helpful: nothing like reading a post from 2010 about how they have derogs that won't fall off until 2012, and 2012 will never get here, and blah blah blah, to put it in perspective.

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Yeah, my fico was actually up in the mid 750's in January until I paid off a car loan that had $12,000 remaining on the balance.  Score immediately sunk about 20 points to about 735 or something.  The thing is, I have another smaller loan at a lower rate that I keep open to keep my mix optimal but it's like you're dinged either way because I've paid off about 40% of it in a year but that doesn't appear to help.

My financial picture overall is great, even though obviously that isn't factored into the fico score.  It's just that you would think somebody with exactly one late payment in 7 years, multiple paid for installment loans on his report and aggressively paying down a small existing loan and zero balance on a bunch of cards could figure out how to get into the high 700s but I guess it's not possible. 

[Thomas_Thumb]

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@nycfico wrote:

A year and a half ago (November of 2018) I messed up and incurred a 30 day late when a payment was returned from Merrick.

Here's the thing.  I have a freaking 720 transunion fico score (737 Fico 9, 717 auto, 727 Bancard 8).

Late Payments over last year years:  One 30 day late as described above from November 2018

Utilization:  5%

AAOA. 5 year, 5 months

Oldest Account:  20 years 5 months

Inquiries:  4 over the past two years.

Age of newest account:  8 months ago

Credit Mix:  5 Credit cards (four of which have zero balance) and one installment loan 40% paid off (this is the one from 8 months ago).

I have four personal loans still appearing on my report, all paid off in full over the past 2-3 years, never a second late.  I have two car loans on my report, again, paid in full and never a second late.

I want to apply for a mortgage and will not get premium level financing.  I mean, I get it, I was 30 days late 18 months ago and that has to cost something but 120 points?!?

I don't even know what to ask here except vent.  I realize I'm not going to be shut out of financing but this seems harsh.

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That single 30 day late is hurting your score quite a bit, probably 60 to 70 points IMO. The penalty is more pronounced for those with an otherwise clean file. After aging past the 2 year mark, the penalty of the late on your file could drop to 40 to 50 points (up to 20 point gain).

In my case the initial score penalty would likely be 80 to 90 points for a recent single 30 day late and 150 points for a new 90 day late! [see simulations pasted below - the drops for my profile are quite extreme but, appear likely nonetheless].

Other factors affecting your score include:

1) Length of payment history on your open loan and remaining B/L ratio of 60%. If you can get it below 9% but, not paid off, that would help your Fico 8 scores. However, impact would likely be inconsequential on Fico mortgage scores.

2) You have accounts under 12 months age. Once your youngest account passes 12 months you may pick-up 20 points.

3) You appear to have multiple recent inquiries. Those may be costing you 10 points on TU and EQ.

4) Your AAoA is only 5 years. You should realize point gains as your overall AAoA increases up to the 8 year benchmark.

 * In addition to overall AAoA, revolver AAoA is looked at independent of installment AAoA with the installment AAoA. The metric for installment AAoA focuses on open accounts per Fico reason statements.

Other than writing good will letters in an attempt to get the late removed, the best thing you can do is not apply for new credit and allow your file to age. Also, continue to practice AZEO to optimize Fico mortgage scores. The aging alone could boost your score 40 to 50 points in 6 months.

[Remedios]

@Thomas_Thumb  I dont mean to high jack the thread, but are utilization thresholds on loans identical to the ones on revolving accounts in terms of percentages? 

[Thomas_Thumb]

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@Remedios wrote:

@Thomas_Thumb  I dont mean to high jack the thread, but are utilization thresholds on loans identical to the ones on revolving accounts in terms of percentages? 

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Balance to loan ratios (B/L), sometimes called installment utilization, have minimal (if any) impact on Fico "mortgage" scores regardless of the B/L level. On the otherhand, revolving utilization level - particularly aggregate revolving utilization - has a strong influence on Fico mortgage algorithms (Fico 04 and Fico 98).

In answer to your question (for the older Fico "Mortgage" algorithms): No, aggregate loan utilization thresholds are not identical to those commonly accepted for revolving accounts in aggregate (e.g. 9%, 29%, 49%, 69% and 89%).

With regard to Fico 8, it has been fairly well established that a step change increase in score can be realized from reducing B/L on a shared secured loan (SSL) to under 9% from above 9%. There are also a couple data points showing a step change increase in Fico 8 score when a relatively new car loan was paid down from above 9% to below 9%. In these cases the SSL and Auto loans were the only ones on file.

In conclusion, for Fico 8, the 9% threshold exists for both aggregate revolving utilization and aggregate (non mortgage) installment utilization. [side note: Aggregate utilization = individual utilization if only one open account].

There is no clear picture on other significant installment utilization thresholds - although data from Inverse and CAPTOOL indicated one might exist at/around 69%.

Personally, I have not seen any B/L thresholds for a mortgage at any point along the way from just above 50% to now 5.4%.  Mortgages are long term loans and I suspect payment history over time trumps any potential for low B/L thresholds. IMO, mortgages are treated differently from other installment loan types by Fico.

For those that have only a mortgage, don't expect a point increase taking the mortgage below 9%. However, expect a Fico 8 score drop when the mortgage is paid off and closed.

[Remedios]

Thank you!