@Anonymous wrote:
Ok l took out two personal loans for hurricane repairs to non residential property and for some dental work. I do not currently have a residential mortgage to borrow against. These were taken out last April and May a bit over a year ago. The total amount of the 2 loans was 75000. By May of this year in anticipation of taking out a new residential construction loan for a waterfront house lot l have paid off both personal loans entirely and have zero debts, l pay off everything monthly so my debt to credit (over $56k in credit)percentages are around 1%. I have experienced a 20+ point drop in overall Fico scores but my middle Fico mortgage score only went down 4 points at 754, it was 758 prior. So my conclusion is the the FICO credit models are skewed against personal loans generally. I think this will change as more big lenders get into this market which is happening now and FICO cannot justify penalizing both lenders and the public from using personal loan tools. Other credit rating companies (Vantage) which l also subscribe to did show a drop in my overall score from 818 down to 794, but overall rate me 40+points higher on the 850 scale.
I think FICO will slowly change this bias as competitors and the lending markets address the huge accumulation of high interest private credit card debt. For myself my personal income to debt ratio is so strong l will take out my mortgage of around 300k and probably pay it off completely in 4 or 5 years.
You are mistaken. No FICO model penalizes personal loans especially (any more than auto loans or student loans, say).
What happened is that your FICO 8 scores took a dive because that particular model likes it when you have at least one open loan and when your loans are mostly but not not entirely paid off. You went from having partly paid off loans to no open loans of any kind which involved a double hit. You also mention that after your payoff you had zero debt of any kind -- if that meant also zero credit card debt you would have received a penalty there too.
The mortgage scores use different and much older models that don't look at whether most of your loans are paid off, so you saw much less of a hit there.
Curiously, there's a widely used technique here on the forums called the Share Secured Loan Technique -- which involves taking out a small personal loan and paying off most of it to get a big scoring boost in FICO 8. So far from FICO not liking personal loans, you can leverage personal loans to give yourself a substantial boost.
