The remaining balance on my loans is too high ... seriously?

[Anonymous]

Please have a look at the included excerpt from my recent FICO score report:

My FICO score was harmed because "The remaining balance on your ... loans is too high."

Notice that the "percentage of principal you have paid down" is 88%. So the remaining balance on my loans is only 12% of the principal. Is that too high?

Moreover, notice that "FICO High Achievers have paid down an average of 40% of the principal on their ... loans" which means that the remaining balance owing on the principal of their loans is 60% -- 5 times as much as the remaining principal on my loans.

I would like to know: By what stretch of the imagination is the remaining balance on my loans too high?

[Anonymous]

Is this the only installment account you have?  (Loans, car leases, finance agreement of furniture at rooms to go, etc.)

Did you pay off an installment account recently?

FICO 8 likes it best when your installment utilization is under 8.99%.  When it is more than that, there is a penalty.

[sueblue34]

I get this all the time and I’m assuming mines stem from my school loans. I have no other installment loans except for my car which only have 3 payments left.

I just ignore it because to me it just feels like they have to find something.

[NRB525]

OP, what are your FICO 8 scores? What score version is this reason related to?

What other Reason Codes do you have that are listed for this same score model?

[Anonymous]

If aggregate loan utilization isn't 91% or greater paid down, maximum scoring benefit isn't achieved, so a negative reason code can exist pointing that out.  While 88% is very close, it's not 91% or greater. 

If you pay down another 3% and it reports and you pull your reason statements again, you'll see that code go away.

[Anonymous]

Thanks for your reply.

I understand that FICO may draw a line in the sand - perhaps in this case it's 91% - below which my remaining principal balance is 'too high.' If that's the case, even paying 90% of the balance wouldn't be good enough.

However, by that measurement (91%) even FICO High Achievers have a remaining balance that's too high - way too high. If someone can be a FICO High Achiever and still have a 60% remaining balance, why is my score being lowered by a 12% remaining balance?

Further, as a practical matter, most borrowers haven't repaid 91% of the principal of their loan until they're very close to the end of the amortization period. Does that mean that their FICO score will be hurt for (let's say) 25 years when they take out a 30 year mortgage? That doesn't seem fair, particularly when a FICO High Achiever's score will be hurt for a lot less time.

[SwarthyOgre]

I get the same thing listed under my possible negative factors and think it's just silly. My only non-mortgage installment loan is currently a 60 month car note of which i have paid it down to 33% and that is "too high"? Good grief. So if you've paid it off or only paid 90% of it you get dinged...I can see why the SSL trick is a thing. I'm glad I got a decent rate and don't have to worry about a refi.

[Anonymous]

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@AnonymousI understand that FICO may draw a line in the sand - perhaps in this case it's 91% - below which my remaining principal balance is 'too high.' If that's the case, even paying 90% of the balance wouldn't be good enough.

However, by that measurement (91%) even FICO High Achievers have a remaining balance that's too high - way too high. If someone can be a FICO High Achiever and still have a 60% remaining balance, why is my score being lowered by a 12% remaining balance?

Further, as a practical matter, most borrowers haven't repaid 91% of the principal of their loan until they're very close to the end of the amortization period. Does that mean that their FICO score will be hurt for (let's say) 25 years when they take out a 30 year mortgage? That doesn't seem fair, particularly when a FICO High Achiever's score will be hurt for a lot less time.

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Mortgages are viewed differently by the FICO algorithm than other installment loan types.  It's believed that around 70% utilization remaining (30% paid down) is enough for maximum scoring benefit.  The reason for this is because it often takes around 10 years of paydown to get to that point, which represents a significant length of time, usually longer than an auto loan for example.

While your score may be being surpressed 10-15 points by having an installment loan in place that's sitting at > 8.9% utilization remaining, it's important to understand that you're still seeing a 10-15 point benefit in having that installment loan in place over not having one at all. 

It's also worth noting that there are High Achievers that have top-notch scores both with installment loans present at high utilization amounts or no installment loans open at all.  Buffering allows one to achieve a perfect score while still having a factor in place that's actually holding back the score.

[Anonymous]

Also important for our OP to be aware that even aside from the buffer at the very top (which enables people to have scores in the 850-870 range but which are truncated at 850) the phrase "High Achiever" is probably being used to describe people with an 800 or above.

People in the 800 club have a wide variety of profiles.  A person with an 840 score could take a 30 point penalty and still be well above 800.  As BBS observes, some 800 club members have no loans, some have two loans on which they owe almost the entire amount, etc.

In terms of practical advice to the OP, we can help him better if he tells us what I asked originally, namely whether he has any other open installment accounts.  The exact utilization on this loan considered by itself is much less important than all of his loans together.

[Anonymous]

After thinking about it:

The ridiculousness of saying that 12% of unpaid principle is 'too high' and the laughable comparison with FICO High Achievers are not weaknesses of the FICO algorithm itself but of the arbitrary and absurd explanations provided as reasons why someone's score was reduced.