@lmohearn wrote:This whole credit score thing is a sham, and a scam.
Agreed. However, you need to know how to play the system. Active installment loans help your scores. Paid-off installment loans don't. My car was totaled recently and the insurance company paid off my auto loan. I fully expect my score to drop a few points until I get a new car and finance it.
When my kids paid off $80K of student loans between them without a single late payment, their scores dropped as well. It makes no sense but this is the system that we have to live with. It's all about big data and predictive value. I'm sure their models show that people with active loans are less likely to default than people with paid-off loans.
I'm surprised that as an Established Member, you were caught unawares by this.
@lmohearn wrote:Not caught unaware per se, just irritated at the stupidity built in to the system. How often does one NEED an intsallment loan? Not all that often I would think. I take one out to buy a car, that's it. I've had only 2 installment loans in the last 22 years.
I think what has helped me cope with the fact that the system is exactly 'fair' is understanding that credit scores aren't for us.
They aren't like grades in elementary school, where if something unfair happens, you can complain to the teacher and principal to get them fixed.
They exist as a gauge of risk and profitablilty that is sold to people with lots of money so they can make lots more money. We are not the people here with lots of money.
The only laughable part of this is that the entity who is making money hand over fist selling these scores has allowed us a public forum to discuss these topics openly, honestly and with their assistance. A more vengful Fico would surely have axed these forums at the first mention of the SSL method and any efforts at this massive crowdsourced effort to 'figure out fico'.
It is a shame that easily maximising FICO in its current state does require either a car, house, student loan or the ability to get into Navy FCU but that's not too much of a price to pay to be honest.
@lmohearnIt is what it is. Plenty of people here dont have loans and still hit the 800's. No ones out to get you. Its all about risk for the banks and how we use our credit for scores. It will rebound in time. We've all been there.
@lmohearn wrote:I have a mix of credit including credit cards, HELOC, mortgage and the car loan was the only "installment" loan. I'm dinged when I pay things off, I'm dinged when I use my credit. There appears to be no winning at all. I'm **bleep** if I do use my credit, **bleep** if I don't use my credit.
Yes, FICO algorithms impose a penalty for having no open loans, so that's the cause.
I agree with you that it's completely irrational.
According to the MyFICO insiders, the data shows that having 0% utilization is slightly riskier than having a low utilization.
Here's what they have to say on the subject. Having low utilization is an indication that you have credit and are using it responsibly.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...
The data shows that going from low installment loan utilization to no installment loan balances reported (and thus 0% installment loan utilization) is slightly more indicative of future risk.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...
Having a low installment loan balance to loan amount ratio is considered slightly less risky than having a 0% installment loan ratio.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...
Having a low mortgage loan balance to loan amount ratio is considered slightly less risky than having a 0% mortgage loan ratio.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...
Analysis on millions of credit files indicates that there is more risk associated with those with zero balance than those with small balances. So, the FICO Score considers consumers with a small balance more favorably than those with zero balance.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...
Me I'm skeptical of their explanations. For one thing, if it's only "slightly less risky", why is the penalty so severe? 35 points is not slight. For another, I simply don't believe that people who have paid off their loan are more risky than people who still have a ways to go in paying off their loan.
By the way, you will probably see that your mortgage scores didn't react as vehemently as your FICO 8's, so you can take comfort in that.
And by the way, congratulations on your great accomplishment in managing the loan properly and paying it off altogether.
