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Scores dropped after car loan paid in full... Why?

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Established Member

Scores dropped after car loan paid in full... Why?

Can one of our resident credit oracles, make a cogent argument why CRA’s drop your score (Fico 8, probably others) when you have paid in full an auto loan? Still have other auto loans reporting on CR, so can’t be because I no longer have no installment loans showing. So everything being equal with the rest of the credit factors that determine your score, why wouldn’t your score GO UP a few/several points?

 

EX down 12, TU down 9, EQ down 18, really!

 

This seems like CRA’s choosing to keep scores lower, why? IMO there is no logical reason why a score should drop in this specific situation.

Message 1 of 10
9 REPLIES 9
Super Contributor

Re: Scores dropped after car loan paid in full... Why?

Personally, I don't think we should get a penalty because we don't have any loans. Why do I have to be in debt to maximize my score? I could understand if I didn't have a closed loan on my report to show I can make larger payments on a extended timeline, but why do I have to have an open one?

 

Don't have an answer for you, but I'm about to be in a similar situation when one of my loans updates this month, so I'll be watching this.








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Message 2 of 10
Super Contributor

Re: Scores dropped after car loan paid in full... Why?

BES, the OP stated that he has other loans aside from the one just closed, so he did not experience a score drop due to closing his only open loan.  Also, you don't have to necessarily "be in debt" in the traditional sense to maximize score, although that's a very common misconception around this forum that stems from many threads similar to this one.  One must however use/manage credit in order to maximize score, which makes perfect sense as it wouldn't be logical to give people a maximum score in a system if they never use said system.

 

OP, it comes down to aggregate installment loan utilization.  What you need to do is determine your before/after overall installment loan utilization (all balances added up divided by all original amounts added up).  When you take the closed loan out of the equation, chances are your overall utilization increased, especially if the loan you just closed was almost paid off.

 

Fico scoring looks at overall utilization (both for revolving accounts and loans) for the Amounts Owed sector of the Fico pie.  In a nutshell and simple terms, it simply "looks" better to the algorithm if you have (say) 1 almost paid off installment loan and 2 relatively new [not paid down much] installment loans rather than just those 2 loans with high balances. 

 

Also, the CRAs don't choose to keep your scores any way.  All CRAs do is compile data.  That data is fed through a scoring algorithm and a score is generated.  The CRAs don't decide anything score-related and are only responsible for the data.

Message 3 of 10
Established Member

Re: Scores dropped after car loan paid in full... Why?

Hmmm,

 

BBS that was a very cogent explanation, thanks. I did not/would not have thought about what you described. Your answer leads me to a couple of other questions though.

  1. I understand the % owed on existing loans could be higher after one loan has been paid in full (as is true in my case). But, my overall DTI is now lower also, why does that not “cancel/impact” the first part of your explanation?
  2. So the CRA’s run the data they have on me through the scoring model and out comes a number. Assuming the CRA’s, have the same data to work with, why is the % change not the same then? EQ is my lowest score, down 18 pts, EX my highest score down 12 pts. It just “feels” like the algos are not consistent. The score changes don’t seem “consistent”, what am I not understanding?

Thanks for the responses.

Message 4 of 10
Established Contributor

Re: Scores dropped after car loan paid in full... Why?


@Illini80 wrote:

But, my overall DTI is now lower also, why does that not “cancel/impact” the first part of your explanation?


But DTI is not part of scoring... DTI is Debt-To-Income, and income is not part of the scoring model.

 

It's certainly part of the credit application process, and improving DTI is a good thing, but FICO scores are blind to income.

 


@Illini80 wrote:

So the CRA’s run the data they have on me through the scoring model and out comes a number. Assuming the CRA’s, have the same data to work with, why is the % change not the same then? EQ is my lowest score, down 18 pts, EX my highest score down 12 pts. It just “feels” like the algos are not consistent. The score changes don’t seem “consistent”, what am I not understanding?


It's not consistent. Although the scoring models have become somewhat more consistent with FICO 8 and 9 than with previous versions, the data they are operating on is NEVER identical across CRAs.

 

Each CRA isn't a carbon-copy of the other two:

  • They receive and process monthly lender data updates at slightly different times
  • They frequently remove older closed accounts at different times
  • Not all lenders report to all three
  • Most importantly, they store the lender-supplied data in slightly different ways (storing just month opened vs exact day, differences in coding of account types, anti-abuse triggers may operate differently for AU accounts at different CRAs, etc..)

All of that easily adds up to the scoring differences that we see.

 

(And forget about the pre-FICO 8 scores... they were heavily customized for each CRA.)

 

EQ8:850 TU8:850 EX8:850
EQ9:850 TU9:850 EX9:850
EQ5:809 TU4:789 EX2:819 - 2019-09-06
Message 5 of 10
Established Member

Re: Scores dropped after car loan paid in full... Why?

Thanks iv, that helps my understanding.

Message 6 of 10
Super Contributor

Re: Scores dropped after car loan paid in full... Why?


@BrutalBodyShots wrote:

BES, the OP stated that he has other loans aside from the one just closed, so he did not experience a score drop due to closing his only open loan.  Also, you don't have to necessarily "be in debt" in the traditional sense to maximize score, although that's a very common misconception around this forum that stems from many threads similar to this one.  One must however use/manage credit in order to maximize score, which makes perfect sense as it wouldn't be logical to give people a maximum score in a system if they never use said system.

 

OP, it comes down to aggregate installment loan utilization.  What you need to do is determine your before/after overall installment loan utilization (all balances added up divided by all original amounts added up).  When you take the closed loan out of the equation, chances are your overall utilization increased, especially if the loan you just closed was almost paid off.

 

Fico scoring looks at overall utilization (both for revolving accounts and loans) for the Amounts Owed sector of the Fico pie.  In a nutshell and simple terms, it simply "looks" better to the algorithm if you have (say) 1 almost paid off installment loan and 2 relatively new [not paid down much] installment loans rather than just those 2 loans with high balances. 

 

Also, the CRAs don't choose to keep your scores any way.  All CRAs do is compile data.  That data is fed through a scoring algorithm and a score is generated.  The CRAs don't decide anything score-related and are only responsible for the data.


I understand he has other loans which is why I said I'm in a similar situation. I have 3, 1 was paid off and about to report as closed.

 

My words were a generalization. It's not logical, because people here are gaming the system by using the SSL technique. Normal people don't do that. If the SSL technique wasn't available or you weren't aware of it, how would you maximize your score at that point without taking a loan? Even if you only have to pay $3 in interest, that's debt. Doesn't matter how trivial the amount is.








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Message 7 of 10
Established Contributor

Re: Scores dropped after car loan paid in full... Why?

Are you sure the algorithms are not still customized? I came across a thread (I think it was here) where there was testing on Experian specifically to see if it was different than the other two. The consensus was that it was.
I just returned from financial hell. Don't go, the brochure is a lie.
Message 8 of 10
Valued Contributor

Re: Scores dropped after car loan paid in full... Why?

I do believe the algorithms are still customized for version eight, although less so than previous models. One of the goals, if I recall correctly, with version nine was to make the algorithms more consistent and less customizable per CRA.







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 9 of 10
Super Contributor

Re: Scores dropped after car loan paid in full... Why?


@Brian_Earl_Spilner wrote:

My words were a generalization. It's not logical, because people here are gaming the system by using the SSL technique. Normal people don't do that. If the SSL technique wasn't available or you weren't aware of it, how would you maximize your score at that point without taking a loan? Even if you only have to pay $3 in interest, that's debt. Doesn't matter how trivial the amount is.


I get what you're saying, but we are talking about someone with 3 loans here closing out 1 of them, which makes the SSL technique a moot point for the purposes of this particular discussion.

 

Agreed that having an open almost-paid-off installment loan is ideal for "maximizing" scores, but that's only with respect to the Amounts Owed sector of the Fico pie related to installment loan utilization.  "Credit Mix" is still satisfied even if one has no open installment loans (so long as they have a closed one on their CR) so I see it more of a glass half full rather than a glass half empty argument.  To me, I view it as bonus points if someone has an almost-paid-off installment loan present over having no open loan.  That's just my perspective.

 

It's also worth considering what the definition of "score maximization" is.  If we're going by the true sense of the term, (say 850) sure, score isn't maximized without having that almost-paid-off loan present.  If we're going by the definition of a score capable of obtaining the best credit product(s) at the best rate(s) a score 100 points shy of that can still accomplish that, which is easily attainable without an almost-paid-off installment loan.  Heck, someone with only 6-12 months of credit history often can debut with a Fico score near that level.  Anyone with (say) 2 years of credit history or more that has to worry about an almost-paid-off installment loan in order to achieve a Fico score great enough to obtain a top-notch rate for a credit product IMO has something else going on with their profile related to the 2/3 of the Fico pie comprised by Payment History and Amounts Owed (revolving utilization) that they should be far more focused on.

Message 10 of 10
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