Is closed account included in Types of Credit Used?

[jello77]

From this forum, I have learned that closed accounts with 0 balances ARE included in the "Length of Credit History" part of your score, but they are NOT included in the credit utilization part of your score.

But I haven't seen any discussion of whether they are included in the "Types of Credit Used" part of your score? 

FICO says your score will be better if you have a "healthy mix" of different credit types. My report shows 5 active credit cards and a closed mortgage account that was paid off in 2002. I am wondering if this mortgage account gets included in the "Types of Credit Used" part of my FICO score.

I have looked all over the FICO site and they don't seem to address this question.

When I bought my Experian report with a non-FICO "VantageScore", the report listed as "negative" factors that I did not have an open mortgage or auto loan. So I would assume the VantageScore model does not include a closed mortgage account in your "mix" of credit types. But FICO's model may be different.

[Anonymous]

.  As far as I know, to be included in your mix of credit, they need to be open accounts.

After checking with the mods, I found I was wrong

Closed and open accounts do count toward your mix of credit.

[vanillabean]

Having one credit card account and one installment loan constitutes a mix of credit.

But how healthy is this simple mix though? Would two of each better than one of each?

Would two credit card accounts and one installment loan be better than one credit card account and two installment loans?

To which extent is your score impacted by the percentage that's paid off on the installment loan?

[MarineVietVet]

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@Anonymous-own-fico wrote:

Having one credit card account and one installment loan constitutes a mix of credit.

But how healthy is this simple mix though? Would two of each better than one of each?

Would two credit card accounts and one installment loan be better than one credit card account and two installment loans?

To which extent is your score impacted by the percentage that's paid off on the installment loan? This from FICO as to what all is included in your score: Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans) It doesn't mention what percentage this affects a score but I understand that's it's very little.

I found that here: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

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[jello77]

I have been checking on other credit-related web sites and forums for more information about this question of whether closed accounts are included in the "Types of Credit" part of your score.

What I found is confusing and contradictory.

On one hand, I have found many examples of people saying that after they paid off an auto or installment loan, their score took a large drop, which would imply that closed accounts do NOT count as part of your credit "mix." 

Here is one example of this:

"Last week, I paid off my auto loan. This week, my FICO score dropped 60 points.There have been NO other changes to my credit report."

 Here is another statement that implies the same thing:

"In a CMAC course-on-CD I listened to, recently, they said that a good credit report and score must have 1 mortgage, 1 installment loan (automobile, etc.), and 2 credit cards on it. All had to still be ‘active’ in order to boost your score."

On the other hand, I found this article on bankrate.com quoting a FICO manager that implies just the opposite. Here are the two key quotes from the article:

"Barry Paperno, the consumer operations manager at FICO ... walked me through the effect that account closures can have on the five factors that comprise your FICO score."

"The factor that considers types of credit used includes both open and closed accounts."

So we are left with a mystery. A FICO manager says closed accounts are included in your types of credit mix. But how can we explain why so many people say paying off auto and other installment loans causes a drop in score? When a revolving credit account is closed, a drop in score often results because the credit limit for the closed account is no longer included in the utilization factor, causing the utilization rate to increase. But auto and installment loans are not included in the utilization rate, so that could not be the reason for a drop in score when the loan is paid off.

Has anyone here ever paid off an auto or installment loan and found that their score did NOT drop?

[RobertEG]

Jello, it is hard, if not impossible, to get an objective answer to your question.  My understanding has always been that closed accounts dont couunt in active mix of credit.  But you have FICO saying they are, so I too am confused.

I, for example, have several old TLs, some revolving and some installment, that are still in my CR after 10-31 years after their closing.  I dont think these are contributing to my credit mix  Since FICO is a risk analysis based primarily on your current and fairly recent use of credit, I doubt that an account I closed 31 years ago would have any predictive use by FICO in assessing my current mix of credit.  .  It  may be beneficial in my date of oldest account, and in calculation of AAoA, , but I dont see it   as something that would logically improve my current mix of credit.

I would be kinda shocked if FICO scores all closed accounts in evaluating my mix of credit.  It just makes no sense to me.

[jello77]

RobertEG,

Thanks for your feedback..

Another possibility is that closed accounts earn some points in your credit mix, but not as many as open accounts, and that the influence of closed accounts diminishes as time goes on until they drop off your report after 10 years. That would strike me as the best way for FICO to handle this issue. But in the absence of a definitive explanation from FICO, we can only guess.

[RobertEG]

Good points, Jello!

Also, I would add, as a side note, that the statements by some that closed accounts drop from your credit file after 10-years is, in my opinion, just an old wives' tale.

Nothing in the FCRA even mandates deletion of any accurate information  from your credit file, unless it was shown to have been inaccurate..  The FCRA only mandates that certain prior derogatory items, as listed in FCRA 605(a), cannot be included in a credit report provided by a CRA after certain dates.  Accounts themselves are not prior derogs.  Lenght of account history from opening is not a derog.

Cessation of the reporting of derogs is not the same as cessation of reporting of accounts, and other information therein, at any time.

If old accounts were routinely deleted at 10 years after closed, consumers would not be able to build an oldest date or AAoA of too much more than 10 years, plus the active life of the account.  That is NOT the case.   My closed account of 31 years ago is a real example.

[MarineVietVet]

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@RobertEG wrote:

Good points, Jello!

Also, I would add, as a side note, that the statements by some that closed accounts drop from your credit file after 10-years is, in my opinion, just an old wives' tale.

Nothing in the FCRA even mandates deletion of any accurate information  from your credit file, unless it was shown to have been inaccurate..  The FCRA only mandates that certain prior derogatory items, as listed in FCRA 605(a), cannot be included in a credit report provided by a CRA after certain dates.  Accounts themselves are not prior derogs.  Lenght of account history from opening is not a derog.

Cessation of the reporting of derogs is not the same as cessation of reporting of accounts, and other information therein, at any time.

If old accounts were routinely deleted at 10 years after closed, consumers would not be able to build an oldest date or AAoA of too much more than 10 years, plus the active life of the account.  That is NOT the case.   My closed account of 31 years ago is a real example.

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Not an old wive's tale at all Robert. Of all the accounts I've ever had only ONE stayed longer than 10 years after being closed and I've had dozens of accounts closed over the years. Explain that to me.

It's your closed account that still reports after 31 years that is the exception to the rule not the norm.

From a BK years ago to:
EX - 9/09 pulled by lender 802
EQ - 7/06-663, 3/10-800
TU - 8/10-772

You can do the same thing with hard work

[vanillabean]

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@MarineVietVet wrote:
Not an old wive's tale at all Robert. Of all the accounts I've ever had only ONE stayed longer than 10 years after being closed and I've had dozens of accounts closed over the years. Explain that to me.

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What if the account is closed and there's no closed date listed. How would you know when to let it fall off?