Wells Fargo loan is penalizing my credit score?

Anonymous · ‎03-17-2015

OK my goal (stated in some other posts of mine) is to improve my scores up past the 740ish range in order to try and get a better rate on a mortgage. My timeline is realistically somewhere in late 2015 most likely to be shopping for mortgages. Scores at the beginning of March were (EQ 731 EX745 TU 749)

Long story short, I had two student loans, both with ~$5000 left on their balances. My plan was to pay one of them off because 1) that's a good feeling and 2) the reduction in my monthly payments would be beneficial when mortgage time comes around. I chose to pay the loan off that had a $439 monthyl payment instead of the one with a $39 monthly payment. The reason for this was solely based on the previously stated goal of having a small monthly debt ratio. I figured that still having one student loan on my credit file would keep me from dropping points because I wouldn't have "zero loans".

However, what I didn't realize was that the loan I decided to keep was from Wells Fargo and apparently that's a bad thing... On MyFICO I got an alert saying I had a 28 point drop after my loan status (from Navient, not Wells Fargo) was "Paid" and has a zero balance. Should I expect a similar drop on the rest of my scores when they get updated? I didn't realize there was a penalty for getting a loan from a less prestigious provider.

Does this seem a little crazy?

thom02099 · ‎03-17-2015

@Anonymous wrote:
OK my goal (stated in some other posts of mine) is to improve my scores up past the 740ish range in order to try and get a better rate on a mortgage. My timeline is realistically somewhere in late 2015 most likely to be shopping for mortgages. Scores at the beginning of March were (EQ 731 EX745 TU 749)

Long story short, I had two student loans, both with ~$5000 left on their balances. My plan was to pay one of them off because 1) that's a good feeling and 2) the reduction in my monthly payments would be beneficial when mortgage time comes around. I chose to pay the loan off that had a $439 monthyl payment instead of the one with a $39 monthly payment. The reason for this was solely based on the previously stated goal of having a small monthly debt ratio. I figured that still having one student loan on my credit file would keep me from dropping points because I wouldn't have "zero loans".

However, what I didn't realize was that the loan I decided to keep was from Wells Fargo and apparently that's a bad thing... On MyFICO I got an alert saying I had a 28 point drop after my loan status (from Navient, not Wells Fargo) was "Paid" and has a zero balance. Should I expect a similar drop on the rest of my scores when they get updated? I didn't realize there was a penalty for getting a loan from a less prestigious provider.

Does this seem a little crazy? Yes

The Wells Fargo loan, in and of itself is not a bad thing, and it's not like MyFICO is looking at your profile and penalizing you for a Wells Fargo loan. If that were the case, everyone, including me, would have a "blemish" by having a Wells Fargo loan. Wells Fargo is certainly NOT a "less prestigious provider".

Likely reason could be that your total mix of all types of credit changed, with the payoff of the Navient loan. Fico scores like to see a good mix of all types; anecdotally, having two or more outstanding loans can be contributory to better scores.

Revelate · ‎03-17-2015

FICO 8 penalizes paid loans far more harshly than FICO 4 or earlier anecdotally.

Whether we call it mix of credit or installment utilization I don't know; my own personal experience is I had 4 installment loans, 3 secured, 1 auto... auto and one secured almost paid off. When the auto loan was paid and reported closed, dropped on the order of 15 points across the board; when one of the installment loans closed I dropped a further 5 points looking at the data.

On the flipside, my EQ Beacon 5.0 score which is used in the mortgage world (none of the FICO 8 scores are) has never been higher. I simply don't care about scores used outside of the mortgage world, or maybe in the auto lending space myself.

Everyone's file is unique but we've had numerous reports of people's FICO 8 dropping with paid installment loans which leads me personally to think that installment utilization on open loans counts far more than it did on prior versions but of course I don't know any real details other than some theorization based on the anecdotal data at hand. Might be able to test this, once the mortgage is mostly sorted I may kick a non-trivial percentage of the remaining balance to one of the secured loans (since the mortgage replaces it as a long-term installment tradeline) and see if my FICO 8 spikes before the mortgage reports.

thom02099 · ‎03-17-2015

@Revelate wrote:
FICO 8 penalizes paid loans far more harshly than FICO 4 or earlier anecdotally.

Whether we call it mix of credit or installment utilization I don't know; my own personal experience is I had 4 installment loans, 3 secured, 1 auto... auto and one secured almost paid off. When the auto loan was paid and reported closed, dropped on the order of 15 points across the board; when one of the installment loans closed I dropped a further 5 points looking at the data.

On the flipside, my EQ Beacon 5.0 score which is used in the mortgage world (none of the FICO 8 scores are) has never been higher. I simply don't care about scores used outside of the mortgage world, or maybe in the auto lending space myself.

Everyone's file is unique but we've had numerous reports of people's FICO 8 dropping with paid installment loans which leads me personally to think that installment utilization on open loans counts far more than it did on prior versions but of course I don't know any real details other than some theorization based on the anecdotal data at hand. Might be able to test this, once the mortgage is mostly sorted I may kick a non-trivial percentage of the remaining balance to one of the secured loans (since the mortgage replaces it as a long-term installment tradeline) and see if my FICO 8 spikes before the mortgage reports.

True Dat!

I'll be able to test this out next month, when I retire and pay off a car loan and a Wells Fargo loan. I'm anticipating a score drop, but since I'm not seeking any new credit, it really doesn't matter if my scores drop.

Anonymous · ‎03-17-2015

to add a bit of detail... MyFICO Equifax Score 5 says the wells fargo loan is a consumer finance loan, and that's hurting me. I didn't know that was a difference until I saw that statement on MyFICO.

what a crock of **bleep** that would be if all of my scores drop dramatically. that might just be a large enough drop to get me out of my 740 range this year. all because I was trying to make me look more attractive.

Anonymous · ‎03-17-2015

@Anonymous wrote:
to add a bit of detail... MyFICO Equifax Score 5 says the wells fargo loan is a consumer finance loan, and that's hurting me. I didn't know that was a difference until I saw that statement on MyFICO.

what a crock of **bleep** that would be if all of my scores drop dramatically. that might just be a large enough drop to get me out of my 740 range this year. all because I was trying to make me look more attractive.

Something is screwed up. A loan from a major bank should not appear as a consumer finance account.

StartingOver10 · ‎03-18-2015

Couple of points here:

re-read Revelates post - he is dead on about the mortgage scores. If the scores you are quoting are FICO 08 then you are looking at the wrong scores. You can now pull all three of your mortgage scores with the 3B report (you will see FICO 08, mortgage scores, auto enhanced scores and bankcard scores).
the immediate loss of points when you pay off an installment loan (if it shows on your mortgage scores) is temporary. You have paid off the loan early enough this year to see a full recovery by the time you apply (most likely - my crystal ball is foggy at the moment)
paying off the high dollar installment loan was an excellent idea. Don't doubt yourself at all for taking care of your DTI prior to applying for a mortgage/refinance

From your initial post you are making all the right steps. Just don't look at FICO 08 because it measures different criteria and the mortgage lenders don't use those scores. If the scores you quoted are your mortgage scores, then you are in excellent shape and should have no problem reaching your goal. In my case, my mortgage scores are substantially higher than my FICO 08 scores. It may be the same for you if you haven't looked yet. You don't know until you check.

cashnocredit · ‎03-18-2015

"Wells Fargo Financial," but not "Wells Fargo" reports as a consumer finance company and will have a small negative effect on scores.

More about this here:

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/0-for-12-months-Is-Wells-Fargo-Financial-...

I have reestablished credit over the last couple years
so my moniker is, well, rather out of date.

WM Discover $1800, WF Plat 12k, Chase Freedom Siggy18k, Amex Plat (60k H/B), Citi AA EWMC 25k

Anonymous · ‎03-18-2015

Ah, that would explain it.

Anonymous · ‎03-19-2015

yes, i know the FICO 08 isn't used by mortgage leders, I was just using it as a benchmark since all three credit agencies show that on MyFICO. Currently only 2/3 of them report a mortgage score. However, like you said, my mortgage scores appear to be higher than my FICO 08's, so that's encouraging!

Thanks for the re-assurance about what i've been doing. it's not a good feeling to be taking 'stabs in the dark' in an effort to improve something very important, only to find out you potentially messed up something big time.