Impact on FICO 8 and 5/4/2 of Reducing Overall Installment (Non-Revolving) Balances

[Anonymous]

Curious about this. Is there a way to "predict" the impact? Is there an "immediate" impact (like when you reduce utilization on revolving)?

[Anonymous]

Reducing your open non-mortage debt from > 91% owed to < 8.99% gets you about 30 points, though some people have reported more like 35-40 points.  Note that the < 8.99% figure is talking about the loans staying open -- if you pay any particular loan off it no longer counts as open debt. 

It seems probable to me that some of the 30 points is gained at one or even two places between 91% and 9% but where those breakpoints are has never been shown for sure.

And yes, the benefit in these cases is realized the instant the new balances appear on your reports.

Mortgage loans appear to be scored differently.  There's been a number of case studies that appear to show that if a person has made regular payments for a number of years and has lowered his mortgage to < 68.99% then he gets the full 30 point benefit.

What happens when he has a mortgage paid down and for a few years (good) but also has a non-mortgage loan at 95% (bad) is unclear, as far as I know.

The mortgage models do not respond reliably or at all to paying down loans.  There's been mixed reports on how that works.  What is certain is that a person trying to prepare for a mortgage should not assume that he would gain any benefit on any mortgage score from paying down loans, and certainly if he has a choice between using the "paydown" money for a DP or for paying down credit cards he should use it for either of those instead.

[Anonymous]

Thank you CGID, this is very informative. More specifically, what are your thoughts about the non-mortgage, non revolving debt - such as an AMEX charge card, or auto loan / other installment loan? Would the 30 point gain still apply? Or less so, since we're not talking revolving?

Thanks!

[Anonymous]

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@Anonymous wrote:

Thank you CGID, this is very informative. More specifically, what are your thoughts about the non-mortgage, non revolving debt - such as an AMEX charge card, or auto loan / other installment loan? Would the 30 point gain still apply? Or less so, since we're not talking revolving?

Thanks!

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My first 2-3 paragraphs dealt with non-mortgage installment debt, such as auto loans, personal loans, student loans, etc.

As far as charge cards, I indicated that the FICO 8 and FICO 9 models ignore the amounts listed on these. 

[Anonymous]

Thanks again. I took that piece to refer to ALL non-mortgage debt, where I was trying to hone in specifically on non-mortgage, non-revolving. Thanks for the clarification - much appreciated!

[Revelate]

Hmm. 68.99% would actually fit my datapoint for the first tier point gain from my original research regardless of loan type since I didn’t have a mortgage then.

Mortgage being so dominant when it comes to size, well, I am expecting to put some extra cash towards either the future Tesla or the mortgage depending which is a higher interest rate, maybe I can go looking for it as I think I am only like 25-30k away from that mortgage line now and my amortization curve is finally starting to accelerate after the first 3 years of my 15 year mortgage.

[Anonymous]

CGID, thanks for the advice! Happy to report that I just picked up 42 pts (still can't believe it myself) in my FICO 5 score! Although it was a mix of revolving and non-revolving pay-down, an increase is an increase - I'll take it! Thanks.