Penalized for paying off personal loan?

[IrishPM]

Revolving utilization is around 26% with a 25+ year history, never any lates or missed payments, no derogs and 4 inquiries. I have a perfect payment history. I paid off a personal loan 18 months early with Prosper and just for comparison purposes only, the difference in scoring models is insane...my Equifax score dipped from 738 (FICO) to 695 and VantageScore 3.0 dipped from 660 to 630. I hope this is a temporary dip. 

[Girlzilla88]

It is a temporary dip it probably just messed with your Account ages but be sure to check here and not really concern yourself about the Vantage to much.     I know some places go based off of that but most still go off of FICO.   

[SouthJamaica]

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@IrishPM wrote:

Revolving utilization is around 26% with a 25+ year history, never any lates or missed payments, no derogs and 4 inquiries. I have a perfect payment history. I paid off a personal loan 18 months early with Prosper and just for comparison purposes only, the difference in scoring models is insane...my Equifax score dipped from 738 (FICO) to 695 and VantageScore 3.0 dipped from 660 to 630. I hope this is a temporary dip. 

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The Equifax and Vantage scores are meaningless, but where you might pay a price is in your FICO 8 scores.

Your revolving utilization is irrelevant, because it is an entirely different metric.

The key questions are these:

1. Was this your only installment loan? (If so, FICO 8 will take off points for not having an active installment loan. Crazy, but it is what it is. Fortunately, the mortgage scores don't penalize nearly as much, if at all.)

2. If it was not your only installment loan, please give (a) the limits and balances on the other loans, and (b) the limit and balance on the Prosper loan before you paid it off.

Then we can explain what is likely to happen or not happen to your FICO 8 scores.

[Anonymous]

@SJ I think the conventional wisdom with Classic 8 is the Credit mix portion is satisfied with an open or closed loan and the only points you gain or lose for any subsequent loans relate to installment utilization.

My recent testing supports this, as did my previous loans when I looked them up for CGID a while back.

[SouthJamaica]

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@Anonymous wrote:
@SJ I think the conventional wisdom with Classic 8 is the Credit mix portion is satisfied with an open or closed loan and the only points you gain or lose for any subsequent loans relate to installment utilization.

My recent testing supports this, as did my previous loans when I looked them up for CGID a while back.

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There isn't the slightest bit of doubt that paying off one's only open installment loan will cost a large point drop in the FICO 8 scores.

[Anonymous]

I always see this as a glass half full vs glass half empty argument.  One may argue that someone takes a "hit" for paying off their only open installment loan, where an equally valid argument is that they got a "boost" from having it there.  If it wasn't there in the first place, there wouldn't have been a hit (as there would never have been a boost).

Closing the only open installment loan on a file does not impact credit mix, as credit mix is still satisfied with either an open or closed installment loan.  What closing it does impact however is the Amounts Owed sector of the Fico pie, where previously points were being awarded for installment loan utilization being present and low.

[Anonymous]

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@Girlzilla88 wrote:

It is a temporary dip it probably just messed with your Account ages but be sure to check here and not really concern yourself about the Vantage to much.  

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Closing an installment loan (or any account) does not mess at all with account ages.  Age of accounts remains the same as both open and closed accounts are factored in equally.  The only way age of accounts would be impacted would be if the account was removed from the CR.

[SouthJamaica]

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@Anonymous wrote:

I always see this as a glass half full vs glass half empty argument.  One may argue that someone takes a "hit" for paying off their only open installment loan, where an equally valid argument is that they got a "boost" from having it there.  If it wasn't there in the first place, there wouldn't have been a hit (as there would never have been a boost).

Closing the only open installment loan on a file does not impact credit mix, as credit mix is still satisfied with either an open or closed installment loan.  What closing it does impact however is the Amounts Owed sector of the Fico pie, where previously points were being awarded for installment loan utilization being present and low.

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Again, I simply stated that paying off one's only open installment loan results in a large drop in one's FICO 8 scores.

I never used the terminology "credit mix".

I have no idea what FICO's terminology is for it.

I only know what happens when you do it.

And it ain't pretty.

[Anonymous]

@SJ That would depend on the B/L. If you open up a loan at 100% and you pay it off at 100% you’re not gaining or losing points if you already had a loan on record.

Now if you pay it down and earn some points then when you close it you’re gonna lose those points.

One other option is if you pay on it for so many months you earn a few points as well, which would be lost when you close it. But if you close it without paying it down or paying any payments there’s not gonna be a point change if you already had a loan on record.

When CGID was discussing it last year, I went back and pulled the loan that I opened and refinanced a month later. There was no score change.

[Anonymous]

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@SouthJamaica wrote:

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Again, I simply stated that paying off one's only open installment loan results in a large drop in one's FICO 8 scores.

I never used the terminology "credit mix".

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I never said you did.  I was responding to BMs use of the term "credit mix" and simply clarifying the reason as to why one would lose points regarding the topic discussion at hand for those (like the OP possibly) that may incorrectly believe it's due to "credit mix" being dissatisfied upon loan closure.