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Score drop after auto loan close AND new loan reporting

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Regular Contributor

Score drop after auto loan close AND new loan reporting

Ok, so I bought a new car and the account for that one reported before my old account reported as paid off...so they were both still on my credit reports and the new account only caused a 3 point drop......when then old account finnally reported to zero there was another 23 point drop--why would a drop like that occur if the new loan was already reporting? I went from 790's to 760's...any idea how long it will take to bounce back? 

 

Some more info, the old loan was at about 11% before the payoff...

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Super Contributor

Re: Score drop after auto loan close AND new loan reporting

Were these your only two installment accounts?  (Personal loans, auto loans, mortgages, student loans, etc... as well as auto leases).

 

If so, it's because you went from an open loan that was almost entirely paid off (11%) to one on which you owe the full amount (100%).  FICO 8 doesn't like that.   You will get the points you lost pack when your loan gets close to being paid off again.

 

If you have other loans, you'll need to tell us all the loans with their balances and original amounts (before payoff and after).

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Frequent Contributor

Re: Score drop after auto loan close AND new loan reporting

You score got hit with new hard pull, a new account reporting which also lowers the average age of accounts, and a high utilization of the total loan amount for the new account. Your previous loan was almsot paid off so it had a very low utilization of the total loan amount.  That is likely the reasons.

 

As the new account ages and you pay down the amount due, you should start to get back the points you lost. 

Current FICO8: EQ:777, TU:754, EX:761 | 2x 30 day lates 4.5-6yrs ago
AAoA: 10 years; AAoOA: 13 months; Credit Length: 21 years
INQ Eq: 3 / Tu: 5 (4 for auto) / Ex: 9 (5 for auto)
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Regular Contributor

Re: Score drop after auto loan close AND new loan reporting

The old one was was my only installment loan.....

Message 4 of 6
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Senior Contributor

Re: Score drop after auto loan close AND new loan reporting


@orezzero wrote:

Ok, so I bought a new car and the account for that one reported before my old account reported as paid off...so they were both still on my credit reports and the new account only caused a 3 point drop......when then old account finnally reported to zero there was another 23 point drop--why would a drop like that occur if the new loan was already reporting? I went from 790's to 760's...any idea how long it will take to bounce back? 

 

Some more info, the old loan was at about 11% before the payoff...


Thanks for the data points. (let's assume the old loan was $20k and the new one is $30k). Sequence of utilization as follows:

1) Loan amount $2.2k on a $20k loan = 11%

2) New loan => aggregate utilization = (30 + 2.2)/(30 + 20) = 64%

3) Old loan paid off & 1 payment on new loan => AG UT = 29.5/30 = 98%

 

When your new loan reported your aggregate utilization rose substantially (from 11% to 64%). However, 64% is still below an upper threshold that I think exits around 70%. Also, age of oldest open loan on file did not change. Thus, minimal score change.

 

When the original loan closed your aggregate utilization spiked to 98% (in this example) which took you well above the hypothesized 70% threshold AND age of your oldest open loan dropped to zero. These two factors are the likely culprits with the spike in utilization being more influential. Unfortunately, the 23 point score drop may remain for at least 12 months unless you shortcut aging by paying the loan down to a low level which defeats the purpose of the loan.

 

This is another example showing substantial installment utilization points being awarded for an "aged" Auto loan above 9%.

 

 

Fico 9: .......EQ 850 TU 850 EX 850
Fico 8: .......EQ 850 TU 850 EX 850
Fico 4 .....:. EQ 809 TU 823 EX 830 EX Fico 98: 842
Fico 8 BC:. EQ 892 TU 900 EX 900
Fico 8 AU:. EQ 887 TU 897 EX 899
Fico 4 BC:. EQ 826 TU 858, EX Fico 98 BC: 870
Fico 4 AU:. EQ 831 TU 872, EX Fico 98 AU: 861
VS 3.0:...... EQ 835 TU 835 EX 835
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950
Message 5 of 6
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Super Contributor

Re: Score drop after auto loan close AND new loan reporting


@orezzero wrote:

Ok, so I bought a new car and the account for that one reported before my old account reported as paid off...so they were both still on my credit reports and the new account only caused a 3 point drop......when then old account finnally reported to zero there was another 23 point drop--why would a drop like that occur if the new loan was already reporting? I went from 790's to 760's...any idea how long it will take to bounce back? 

 

Some more info, the old loan was at about 11% before the payoff...


FICO 8 scores are very sensitive to overall utilization percentage of open installment loans. So when you had the 2 loans, 1 mostly paid off, the overall utilization percentage was much lower than it was when you had only the new loan, hardly paid off at all.


Total revolving limits 653000 (575000 reporting)

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