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Revisiting effects of closed loans on credit

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Revisiting effects of closed loans on credit

I've noticed two different scoring reactions for what was essentially the same action taken twice in the same year, and I'm trying to narrow down if it even has to do with those actions or if it exposed a different issue that needs addressing.

 

- At the start of this year, my EX8 was 763. I had two delinquint accounts reporting (both 6+ years old) and three installment loans on my report (1 auto, 1 mortgage, 1 student loan). CCs are PIF every month, but report a balance fluctuating from 1 to 5% of my total CL; that is, these should be a non-factor in my scoring other than to wiggle it a point or two month-to-month.

 

- In April, my EX8 went up to 790 when one of the 2 delinquint reportings finally aged off my report.

 

- In June, the mortgage was paid off. Score did not move (other than the usual 1-2 points per month movement due to whatever my CC balance was that month).

 

- In September, the student loan was paid off. Score fell from 790 to 775. It's an insignificant point shift in the grand scheme of things, but I was a little surprised to see this nonetheless.

 

As of the 775 score report, my EX report shows:

- 1 30+ late payment, with a time-since-late of 6 years, 9 months.

- 0 public record/collection

- 6 open accounts (1 installment)

- 3% revolving utilization

- AAoA is 8 years, 8 months with AoOA 13 years 6 months and AoYA 1 year 3 months

- 1 inquiry

 

At first, I thought it was my auto loan, but it's got a < 40% balance remaining, and I thought below that mark the scoring wasn't all that affected. I wonder if it could be that my 3 oldest accounts (CC, mortgage, student loan) all closed this year, but they stay on my report for 10 years so that doesn't seem correct, either. The report above seems to confirm that.

 

So what made FiCO decide that I did something wrong last month?

6 REPLIES 6
Super Contributor

Re: Revisiting effects of closed loans on credit


@iced wrote:

I've noticed two different scoring reactions for what was essentially the same action taken twice in the same year, and I'm trying to narrow down if it even has to do with those actions or if it exposed a different issue that needs addressing.

 

- At the start of this year, my EX8 was 763. I had two delinquint accounts reporting (both 6+ years old) and three installment loans on my report (1 auto, 1 mortgage, 1 student loan). CCs are PIF every month, but report a balance fluctuating from 1 to 5% of my total CL; that is, these should be a non-factor in my scoring other than to wiggle it a point or two month-to-month.

 

- In April, my EX8 went up to 790 when one of the 2 delinquint reportings finally aged off my report.

 

- In June, the mortgage was paid off. Score did not move (other than the usual 1-2 points per month movement due to whatever my CC balance was that month).

 

- In September, the student loan was paid off. Score fell from 790 to 775. It's an insignificant point shift in the grand scheme of things, but I was a little surprised to see this nonetheless.

 

As of the 775 score report, my EX report shows:

- 1 30+ late payment, with a time-since-late of 6 years, 9 months.

- 0 public record/collection

- 6 open accounts (1 installment)

- 3% revolving utilization

- AAoA is 8 years, 8 months with AoOA 13 years 6 months and AoYA 1 year 3 months

- 1 inquiry

 

At first, I thought it was my auto loan, but it's got a < 40% balance remaining, and I thought below that mark the scoring wasn't all that affected. I wonder if it could be that my 3 oldest accounts (CC, mortgage, student loan) all closed this year, but they stay on my report for 10 years so that doesn't seem correct, either. The report above seems to confirm that.

 

So what made FiCO decide that I did something wrong last month?


The big number in installment loans is to get down to 9% in the aggregate. When you get down to that number you get a bonus in the FICO 8 scores.

 

Usually each time you pay off a loan which has already been mostly paid off, you are increasing that percentage.


Total revolving limits 719k (592500 reporting) FICO 8 scores: EQ 735 TU 782 EX 746
Message 2 of 7
Valued Contributor

Re: Revisiting effects of closed loans on credit


@SouthJamaica wrote:


The big number in installment loans is to get down to 9% in the aggregate. When you get down to that number you get a bonus in the FICO 8 scores.

 

Usually each time you pay off a loan which has already been mostly paid off, you are increasing that percentage.


The student loan had a balance of around 20% of original loan amount when I paid it off, so my aggregate would have been lower though nowhere near 9% for installments. That is, I'm not sure I was getting the scoring bonus to begin with, so it wouldn't have been taken away.

 

That said, the percentage now would have gone from 25% to around 40%. If that's enough to bump up a bracket and cause a score loss, I guess that could be the cause, though that leaves me wondering why the mortgage payoff earlier didn't result in a score bump as it was over 50% at the time of payoff.

Message 3 of 7
Super Contributor

Re: Revisiting effects of closed loans on credit


@iced wrote:

@SouthJamaica wrote:


The big number in installment loans is to get down to 9% in the aggregate. When you get down to that number you get a bonus in the FICO 8 scores.

 

Usually each time you pay off a loan which has already been mostly paid off, you are increasing that percentage.


The student loan had a balance of around 20% of original loan amount when I paid it off, so my aggregate would have been lower though nowhere near 9% for installments. That is, I'm not sure I was getting the scoring bonus to begin with, so it wouldn't have been taken away.

 

That said, the percentage now would have gone from 25% to around 40%. If that's enough to bump up a bracket and cause a score loss, I guess that could be the cause, though that leaves me wondering why the mortgage payoff earlier didn't result in a score bump as it was over 50% at the time of payoff.


9% is the big one, but there are other bonuses on the way down. When you paid down a loan that was 80% paid off that probably cost you some points by increasing your aggregate loan utilization percentage from, as you say, 25% to 40%.

 

If the mortgage was 50% paid off, paying it down to zero didn't hurt your utilization percentage at all; in fact it helped a little.

 

 


Total revolving limits 719k (592500 reporting) FICO 8 scores: EQ 735 TU 782 EX 746
Message 4 of 7
Valued Contributor

Re: Revisiting effects of closed loans on credit


@SouthJamaica wrote:


9% is the big one, but there are other bonuses on the way down. When you paid down a loan that was 80% paid off that probably cost you some points by increasing your aggregate loan utilization percentage from, as you say, 25% to 40%.

 

If the mortgage was 50% paid off, paying it down to zero didn't hurt your utilization percentage at all; in fact it helped a little.

 

 


I thought this too, except I did not see a score increase when the mortgage was paid off. The mortgage was > 50% and the balance on the mortgage dwarfed the other loans, so that was a large drop (from around 80% to 30% aggregate), but it had no effect on my scoring at all. Then, a few months later, I go from 25% to 40% and suddenly see a drop?

Message 5 of 7
Super Contributor

Re: Revisiting effects of closed loans on credit

Mortgage loans are believed by many to be considered differently by the Fico algorithm than other installment loan types.  Where a non-mortgage loan may need to be paid down to under 9% to see "loan balances too high" type negative reason statements go away, many have reported such statements when considering a mortgage to go away at a value around 70%-80%; I for example have not seen a negative reason statement for my mortgage (only open installment loan) in over year and I'm at around 74% utilization on it now.

 

Anyway, when considering your aggregate loan utilization both before/after your mortgage payoff, perhaps due to the loan type(s) the algorithm was more considering you "significantly paid down" with that mortgage loan open when looking at aggregate, where with it closed and the denominator dropping significantly this may not be the case.

Message 6 of 7
Valued Contributor

Re: Revisiting effects of closed loans on credit

OP Recalculate your before and after aggregate installment utilizations excluding the mortgage and give us your percentages.







Installment loan reported this month,so technically, I'm at 2 months, but AoYA points were NOT reset. When new CCs hit and it is reset, I'll put the number it is.+1,+2,+2(Forgive typos, mobile.)(Everything said is Just IMHO.)
Scores updated AUG 4, '19. Since then, 5 HP dings to add; will update again.
Message 7 of 7
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