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Installment Loan Closed, A Large Drop In FICO Scores

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Moderator Emeritus

Installment Loan Closed, A Large Drop In FICO Scores

I was expecting a drop in my FICO 08 Scores after my auto loan updated as closed and paid satisfactorily. I didn't expect this big of a drop. I have 4 closed installment loans on each one of my reports. I do not have an open installment on any of my reports. In all honesty, I have never seen anyone lose this many points for having their only open installment account update as closed. Here's the before and after. It really needs to be said again, FICO 08 wants open installments in good standing on our reports. I got pimped slapped.Smiley Indifferent

 

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Message 1 of 22
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Moderator Emeritus

Re: Installment Loan Closed, A Large Drop In FICO Scores

Sadly this doesn't surprise me at all senor.

 

We've seen drops in the low 30's before, and that was a member below your godlike credit score so your 33ish while a new record, isn't an abberation.

 

What I am interested to see is that your score was an 850 presumably with just the 1 installment loan open?  I'd been suggesting people have two open installment loans, and while it might be a smaller improvement, nice to see you can max the scorecard with just the 1.

 

Best recommendation I have for anyone in such a situation: park $250 or whatever in a DCU account (or $500 for their 3% savings account APR offer they've got going on) and see if you can open up a 10 year secured note which they suggest they offer against it and simply autopay and forget it.  




        
Message 2 of 22
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Moderator Emeritus

Re: Installment Loan Closed, A Large Drop In FICO Scores

By taking this fairly large drop in scores, I saved nearly $3,500. The dealership I leased my car from had a special going on. Turn in my car 4 months early and get a new lease. The dealership said no more payments would be due on the first least. Yay! I have it in writing and my CR's reflect everything was done correctly. They even let my wife get the new lease in her name only, instead of me. No hard inq or new account for me. I have always said this and I'll say it again: saving money is far, far more important than FICO Score of 800+.

 

In the past, I have seen many folks lose some points for not having any open installment accounts, but I wouldn't have guessed as many as 36 points. Good grief, there's so much to learn about the 08 formula.

Message 3 of 22
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Valued Contributor

Re: Installment Loan Closed, A Large Drop In FICO Scores

Shocking! How will we fall asleep tonight? But good to hear you got a great deal in return.

 

Message 4 of 22
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Moderator Emeritus

Re: Installment Loan Closed, A Large Drop In FICO Scores


@My-own-fico wrote:

Shocking! How will we fall asleep tonight?


Smiley Indifferent

Message 5 of 22
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Moderator Emeritus

Re: Installment Loan Closed, A Large Drop In FICO Scores

Likewise I've always pontificated finances > FICO as well.

 

Hence the dipstick minimal amount / minimal interest secured loan to just put an installment line on the credit report /shrug.  Granted north of 740 scores are mostly superfluous anyway, and it's not like anyone north of 800 needs to do anything to recover points, but it is interesting to see that you have to be close to the no installment loan limit, will be interesting to see your scores over time if you don't tack on another installment loan.  

 

Also would be interesting to see if a new installment loan takes you right back to 850 (assuming doesn't impact your AAOA much, I make the assumption you have a non-trivially thick file) if you go that route as well.




        
Message 6 of 22
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Valued Contributor

Re: Installment Loan Closed, A Large Drop In FICO Scores

So this is what would have happened if I'd have paid off my house instead of buying a new one.   I prefer your method and saving money, but I'll also love the new area and living closer to my kids.

 

I'd have never guessed that paying off your major debts would cause that type of score hit since the account stays on your file for 10 years. FICO 08 wants you in current debt. I don't think that's a good thing. I think that recent good payment on an installment loan is just as good or a better indicator of credit worthiness (probability of paying) then open installments.

 

Question to OP: Do you still have an open home loan or are all installment loans closed?  I know you said you have no open installment, but I'm just double checking. Since Revelate previously thought two installment loans were optimal, I wonder if that's the traditional car and home. Not many people pay cash for both. 

Original Mortgage maturity Sept 2044; Refi maturity Dec 2030
Starting Score: EX 751 EQ 720 TU 737 on 4/9/14
Current Score: EX 849 EQ 835 TU 843
Goal Score: 850


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Message 7 of 22
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Blogger

Re: Installment Loan Closed, A Large Drop In FICO Scores

I agree, money is the most important consideration. After all, Fico scores are meaningful to you only inasmuch as they grant you lower interest rates and thereby help you save money.

your credit profile consists of revolving accounts and installment accounts. If you don't have an active installment account, you're missing out on an entire scoring category. I suspect not having an open credit card would have similar impact.
Message 8 of 22
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Established Contributor

Re: Installment Loan Closed, A Large Drop In FICO Scores

you mean the fico scores in the 800's without actually a mortgage loan

I always thought mortgage loans did pretty well for FICO; more than one mortgage was even better

 

 

Message 9 of 22
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Super Contributor

Re: Installment Loan Closed, A Large Drop In FICO Scores


@HiLine wrote:
I agree, money is the most important consideration. After all, Fico scores are meaningful to you only inasmuch as they grant you lower interest rates and thereby help you save money.

your credit profile consists of revolving accounts and installment accounts. If you don't have an active installment account, you're missing out on an entire scoring category. I suspect not having an open credit card would have similar impact.

At some level it makes sense to me that there could be a correlation between likelihood of future on time payments and having an open ( paid as agreed ) installment account.    I'm assuming that is the reason why FICO08 dinged you when the account reported closed.

 

I agree with others that saving money trumps FICO, but it's unfortunate that the point impact was significant.

 

 

 

 

 

 

March2010 FICO® ~ 695 TU, 653 EQ, 697 EX
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