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Installment Loan

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Regular Contributor

Installment Loan

To maximize scoring I know having one installment loan is needed.  Does 2 do anything ?  Would having 2 and then closing one have an impact on a score ?

7 REPLIES 7
Valued Contributor

Re: Installment Loan

Once you have at least one open, the differences will be based on the percentage of the original balance(s) that have been paid down.

 

A loan that is very close to being paid off (but is still open) is "better" than a loan that is brand-new, and that has just reported at 100% (or higher, due to interest).

 

EQ8:850 TU8:850 EX8:850
EQ9:850 TU9:850 EX9:850
EQ5:809 TU4:789 EX2:819 - 2019-09-06
Message 2 of 8
Super Contributor

Re: Installment Loan


@800goal800 wrote:

To maximize scoring I know having one installment loan is needed.  Does 2 do anything ?  Would having 2 and then closing one have an impact on a score ?


A second wouldn't offer up any additional benefit over just one.  In addition to that, maximum scoring benefit is realized when aggregate installment loan utilization is at 8.9% or less (of the original balance).  Adding additional loans generally speaking only makes it more difficult to get aggregate loan utilization down to the ideal range, so I'd argue that additional loans would only hinder Fico scores in most circumstances over having just 1 installment loan.

Message 3 of 8
Regular Contributor

Re: Installment Loan

My installment loan situation is as follows..... I had a car loan for the last 18 months ( not close to paying it off ) and I refinanced it last month.  So for approximately 4 weeks both were reporting.  I don’t remember seeing any score move when the new ( refinanced ) account hit.  My question is why would there be a huge drop in scores when the first installment loan was reported as paid / closed a few days ago.  

Message 4 of 8
Super Contributor

Re: Installment Loan


@800goal800 wrote:

My installment loan situation is as follows..... I had a car loan for the last 18 months ( not close to paying it off ) and I refinanced it last month.  So for approximately 4 weeks both were reporting.  I don’t remember seeing any score move when the new ( refinanced ) account hit.  My question is why would there be a huge drop in scores when the first installment loan was reported as paid / closed a few days ago.  


...because your overall installment utilization percentage when the 2 loans were reporting side by side was good, but when the almost paid off loan disappeared, and the completely unpaid loan was there by itself, your installment utilization percentage became bad....


Total revolving limits 728500 (602000 reporting) 10/2/19 FICO 8 scores: EQ 744 TU 782 EX 746
Message 5 of 8
Regular Contributor

Re: Installment Loan

The original loan was not almost paid off....it was a 72mos auto loan with about 55 months left. 

Message 6 of 8
Established Contributor

Re: Installment Loan

Installment loans don't need to be below 8.9% to receive maximum points. My one open auto loan has 32% remaining and my EQ08 score was 850. Off-topic, but I let one card report 36% utilization last month and it only dropped my score one point to 849. Color me skeptical about the AZEO with less than 8.9% reporting.

Starting Scores:
1/19/14:

1/28/14:
2/12/14:
Current Scores:
7/10/19:
12/17/16:
9/05/17:
Message 7 of 8
Highlighted
Super Contributor

Re: Installment Loan


@EddieK wrote:

Installment loans don't need to be below 8.9% to receive maximum points. My one open auto loan has 32% remaining and my EQ08 score was 850. Off-topic, but I let one card report 36% utilization last month and it only dropped my score one point to 849. Color me skeptical about the AZEO with less than 8.9% reporting.


1. They need to be below 10% to receive maximum points. Getting it down to 8.9% is just insurance against it being rounded up to 10%.

 

2.  The fact that you had an 850 doesn't mean you were getting maximum points from installment utilization. There are buffers which could take you to 850.  Similarly your 849 didn't mean you weren't losing points from the 36% card; you were,  you were just being saved by a buffer.

 

3. AZEO is NOT important for the FICO 8 and similar scores. It is just an insurance policy against getting dinged for revolving utilization in some of the older scoring models, especially the mortage scores.


Total revolving limits 728500 (602000 reporting) 10/2/19 FICO 8 scores: EQ 744 TU 782 EX 746
Message 8 of 8
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