Paid Loan Score Drop *update*

[elim]

Floor planned a job at work and needed an extra 6k for a few months. Penfed Personal Loan was approved when MF reported my EQ score at 805. Paid in 6 months @ 1k/month. Cost me 40 points (my utilization is perfect). When will Fico fix this stupid flaw in scoring. A recent positive paid loan should still weigh toward a good score (as a closed loan with late payments is weighed toward a bad score).

[Anonymous]

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@elim wrote:

Floor planned a job at work and needed an extra 6k for a few months. Penfed Personal Loan was approved when MF reported my EQ score at 805. Paid in 6 months @ 1k/month. Cost me 40 points (my utilization is perfect). When will Fico fix this stupid flaw in scoring. A recent positive paid loan should still weigh toward a good score (as a closed loan with late payments is weighed toward a bad score).

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I think you are missing the point. As long as lenders can charge people with lower scores more than they charge people with higher scores, and as long as FICO gets the lion's share of its revenues from lenders, FICO will continue to use a paid account as a NEGATIVE that reduces points. Anything that lowers credit scores is OK with lenders. The 40 points you got docked for paying off your installment loan is the same 40 points I got docked when I paid off my car loan. Be thankful you didn't pay off your mortgage - that's good for a 60 point ding.

[Trudy]

Unfortunately, that's simply how the algorithm works.  At least we know how it works as ridiculous as it may seem sometimes.

OP, Curious, what was your score movement when the loan hit and as you paid it down, prior to paying it off?

[elim]

Eq has taken the biggest hit so far.

[elim]

Ok. Now I'm really confused. Sorry MF. Screamed for no reason?

[elim]

UPDATE:

My last installment loan (auto) was just paid off and lost 40 so far.

[elim]

Hard hit on EX

[disdreamin]

Okay, you've got me worried here. I paid off my car about three weeks ago and my mortgage last week. A big scoring hit wouldn't be a big deal, but I am planning to apply for an auto loan as soon as the vehicle I ordered arrives at the dealership. Is it really possibly to lose 100+ points for closing auto and mortgage out and having no active/open installment loans? That is terrifying.

[Phana24]

Excellent question.  From what I understand, the FICO mortgage scores are somewhat less volatile than the F-8s, and since there will be an underwriter involved, you do get to explain the situation.  That's one of the reasons I ALWAYS have a small personal or car loan/re-fi going(car refis are getting really low these days, I did my last one at 4% on a 4 yr old vehicle via a credit union).  Even a 2-3 K loan at 4-7% is helpful, especially since my mortgage is done and I do not want a HELOC that might interfere with a very "unusual" situation I have with a property tax exemption.  Seven to fifteen dollars a month in interest is less than you can buy credit monitoring.  Since my scores have historically tracked well versus Experian(which anyone can get for free) and even the FAKO scores some of my cards provide, simply checking TU and (UN)Equifax(I've had some "issues" with EQ regarding disputes where I was clearly right) reports annually has kept my scores in decent shape(725-760) ever since I applied what I learned here. 

[elim]

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@disdreamin wrote:

Okay, you've got me worried here. I paid off my car about three weeks ago and my mortgage last week. A big scoring hit wouldn't be a big deal, but I am planning to apply for an auto loan as soon as the vehicle I ordered arrives at the dealership. Is it really possibly to lose 100+ points for closing auto and mortgage out and having no active/open installment loans? That is terrifying.

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I would plan on a 20-30 point loss. You may be ok with your auto purchase as it has taken longer than normal to report the account closure on mine(EQ was the fastest).