Personal loan paid off but hurts scores?

[myquestionsfico]

I've read on the forums that it's good to have a mix of credit types, and in my rebuilding I've gone out and gotten small (6K) loans that I could easily pay back over a couple of years. 

I recently paid off the small loan I had open with Lending Club that was 3 years in duration.  It seems to have helped my scores while it was open (of course, I did take a hit for the initial hard pull), but I took a hit when it was paid off, which just seems wrong to me.  The fairness (or lackthereof) of credit bureaus just kills me - if you seek credit, you get dinged.  If you pay it off, you get dinged.  If you even use a little of your utilization, you get dinged.  How can anyone know the right mix/behavior, other than learning from you good people (who I am truly thankful for)? 

[dragontears]

was it your only loan?

[SouthJamaica]

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@myquestionsfico wrote:

I've read on the forums that it's good to have a mix of credit types, and in my rebuilding I've gone out and gotten small (6K) loans that I could easily pay back over a couple of years. 

I recently paid off the small loan I had open with Lending Club that was 3 years in duration.  It seems to have helped my scores while it was open (of course, I did take a hit for the initial hard pull), but I took a hit when it was paid off, which just seems wrong to me.  The fairness (or lackthereof) of credit bureaus just kills me - if you seek credit, you get dinged.  If you pay it off, you get dinged.  If you even use a little of your utilization, you get dinged.  How can anyone know the right mix/behavior, other than learning from you good people (who I am truly thankful for)? 

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Your FICO 8 scores are affected by your aggregate installment loan utilization percentage, the sweet spot being 1 to 9%. When you pay off a mostly paid off loan, it usually increases your aggregate percentage. So the trick now is to try to get your aggregate to 9% or less.

[myquestionsfico]

It was.

I don't even need a loan, but I took it out to just build credit history and have an installment loan active/on record.  I paid it off early to cut down on interest. 

Of course, paying it off seems to hurt you if it's the only one.

[SouthJamaica]

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@myquestionsfico wrote:

It was.

I don't even need a loan, but I took it out to just build credit history and have an installment loan active/on record.  I paid it off early to cut down on interest. 

Of course, paying it off seems to hurt you if it's the only one.

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Yes if it's your only open loan,  you lose all the bonus points you were getting from a mostly paid down loan.

I think it's a ridiculous hole in the algorithm, but there it is. To my mind, a paid off closed loan is great proof of creditworthiness and should be a plus not a minus in any algorithm.

Take comfort in the fact that your mortgage scores probably barely reacted, if they reacted at all.

[myquestionsfico]

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@SouthJamaica wrote:

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@myquestionsfico wrote:

It was.

I don't even need a loan, but I took it out to just build credit history and have an installment loan active/on record.  I paid it off early to cut down on interest. 

Of course, paying it off seems to hurt you if it's the only one.

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Yes if it's your only open loan,  you lose all the bonus points you were getting from a mostly paid down loan.

I think it's a ridiculous hole in the algorithm, but there it is. To my mind, a paid off closed loan is great proof of creditworthiness and should be a plus not a minus in any algorithm.

Take comfort in the fact that your mortgage scores probably barely reacted, if they reacted at all.

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Couldn't agree more - a paid off loan certainly shows you're creditworthy...which, other than making money, is what creditors want - reliability.

[SouthJamaica]

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@myquestionsfico wrote:

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@SouthJamaica wrote:

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@myquestionsfico wrote:

It was.

I don't even need a loan, but I took it out to just build credit history and have an installment loan active/on record.  I paid it off early to cut down on interest. 

Of course, paying it off seems to hurt you if it's the only one.

---

Yes if it's your only open loan,  you lose all the bonus points you were getting from a mostly paid down loan.

I think it's a ridiculous hole in the algorithm, but there it is. To my mind, a paid off closed loan is great proof of creditworthiness and should be a plus not a minus in any algorithm.

Take comfort in the fact that your mortgage scores probably barely reacted, if they reacted at all.

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Couldn't agree more - a paid off loan certainly shows you're creditworthy...which, other than making money, is what creditors want - reliability.

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Making money is not merely as probative of the likelihood of repayment as is the fact that you've paid off all of your debt according to its terms. In my experience people who make a lot of money are even more likely to stiff people than those who don't. That's how some people make all that money -- by stiffing creditors.

[Anonymous]

These scores are garbage.  I always had credit scores above 800, then hit hard times 10 years ago and saw them slip into the mid 600's (credit card default).  During this time I signed up at myFICO and really started montoring my score.  In the last several months, my Score has been a perfect 850 in all three bureaus.  This month it has fallen drastically... by 36 points and 38 points at two of the bureaus.  Why?  Because I accelerated the last payment on my car by ONE MONTH.  Yes, I paid off a measly $454.00 one month early and took a 36/38 point HIT to my perfect score.  And I paid it off early just to have the title in my hands as I need to trade the car in (mechanical issues not worth the cost of fixing).  36 Points for paying off an immaterial $454???  (The rest of my credit cards are paid in full each month.)...  With this and other experiences I've seen in the last 10 years I'm beyond convinced that the models are virtually worthless and probably holding most Americans back from their potential.    I would have loved to have shown up at the dealership with a PERFECT score.  Even if I take a .01% hit on my new upcoming loan from this fraud, its criminal.

[dragontears]

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@Anonymous wrote:

These scores are garbage.  I always had credit scores above 800, then hit hard times 10 years ago and saw them slip into the mid 600's (credit card default).  During this time I signed up at myFICO and really started montoring my score.  In the last several months, my Score has been a perfect 850 in all three bureaus.  This month it has fallen drastically... by 36 points and 38 points at two of the bureaus.  Why?  Because I accelerated the last payment on my car by ONE MONTH.  Yes, I paid off a measly $454.00 one month early and took a 36/38 point HIT to my perfect score.  And I paid it off early just to have the title in my hands as I need to trade the car in (mechanical issues not worth the cost of fixing).  36 Points for paying off an immaterial $454???  (The rest of my credit cards are paid in full each month.)...  With this and other experiences I've seen in the last 10 years I'm beyond convinced that the models are virtually worthless and probably holding most Americans back from their potential.    I would have loved to have shown up at the dealership with a PERFECT score.  Even if I take a .01% hit on my new upcoming loan from this fraud, its criminal.

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You are not going to get a worse rate with a 814 score versus a 850. In reality the lowest interest tier can be obtained in the mid to upper 700s for most credit products. 

You didn't loose points from paying the loan off early, if you had waited and kept to the payment schedule the score change would be the same. 

Not sure what potential you think is being inhibited by scoring models, that just doesn't make sense to me. 

[Anonymous]

My point is that a 36 - 38 point HIT to a score over a completely immaterial $454.00 is absurd.  These models are worthless!  When my credit was bad several years ago, I didn't pay a $500 balance off a credit card before it was reported and watched my score drop 50 POINTS - it took my score to the next lower level of credit worthiness.  When I was back to a zero balance the next month,  my score gained only 3 points or so.  To my point, these scores are fruadulent!!!  The 50 remained removed for the next several years until the 7 year period expired on the earlier cc charge off.  This system is simply a different form of slavery - economic slavery, especially for those who are trying to honestly build themselves back up!!