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What % of loan balance is ideal?

stellar
Established Contributor

What % of loan balance is ideal?

I have a student loan in deferment now until August.  Nothing has been paid on it yet.

 

 I sometimes get this decline reason:  Proportion of loan balances to loan amounts is too high 

 

At what percentage does this reason go away?  10%? 25%? 51%?

 

TIA

Message 1 of 10
9 REPLIES 9
Sandibeach22
Valued Contributor

Re: What % of loan balance is ideal?

They say this for mortgages and auto loans as well.  I think the majic number is 50-60%.  I have a long way to go with my mortgage!!


FICOS: EQ-812 TU-811 EX-818 Goal - 840-850 Across The Board
Total Credit Lines - 506K Gardening....
"I am the master of my fate and the captain of my destiny" Nelson Mandela
Message 2 of 10
stellar
Established Contributor

Re: What % of loan balance is ideal?

Thanks Sandi!  It's just a small loan so I'll try to get it to 50% quickly.

Message 3 of 10
2b2rich
Established Contributor

Re: What % of loan balance is ideal?

yes, I have 2 new auto loans that are less than 6 months old and I get that all the time from MyFico when showing me why my score isn't higher.  MyFico shows that high achievers have paid down at least 39%:

 

39.png

 

Chapter 7 Discharged & Closed Jan 2020
Message 4 of 10
stellar
Established Contributor

Re: What % of loan balance is ideal?

Great thanks 2b2!

Message 5 of 10
NRB525
Super Contributor

Re: What % of loan balance is ideal?


@stellar wrote:

I have a student loan in deferment now until August.  Nothing has been paid on it yet.

 

 I sometimes get this decline reason:  Proportion of loan balances to loan amounts is too high 

 

At what percentage does this reason go away?  10%? 25%? 51%?

 

TIA


Well, hold the phone. You have 34 images in your siggy, a mix of credit cards and store cards. Do you get other Reasons in the decline letters?

Because they have to provide you with 3 or 4 reasons. It's in the computer progam. Many of those reasons make no sense, in a lot of cases. Everyone with a substantial mortgage gets that as a reason in the Reason letter, but it doesn't mean that's the Real Reason for the decline.

 

What are the other reasons provided on these declines? Who are you applying for credit, where you don't already have a card Smiley Happy

 

And if your student loan is a small one, I would not recommend paying it off too fast. That student loan is going to be a plus on your credit report as you are making payments. Unless you really can't stand the sight of the interest cost, and you've got $X,XXX burning a hole in your pocket you just have to pay it off with, use the low interest and earn some credit score points. Your choice, but the Reasons letter would not be my trigger to pay such a loan off.

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
March 2021 $33k on $312k EQ 796 TU 798 EX 801
Message 6 of 10
CreditGuyInDixie
Super Contributor

Re: What % of loan balance is ideal?

NRB525 makes a lot of good points.  "How can I raise my credit score?" is a common question, here and elsewhere.  But in theory it should be asked with an aim in mind: e.g. because I'd like to get buy a home in a couple years, because I want a car loan, etc. 

 

Without knowing anything else except what you have disclosed on your sig and in the initial post (you are a student with 34 credit cards) it's a fair guess that having an installment loan that still has most of the principal on it is NOT the reason your score is not higher.  No judgment here I promise you, just trying to be helpful: but you may wish to explore why it is that you have such an enormous need to apply for cards.  There can't be a genuine need that you have for that many.  And bear in mind too that the important credit reviews you will get in life (e.g. a mortgage) involve a real human looking at your report.  When a 40 year old businessman has 20 credit cards, it doesn't look odd; when a student has 34 cards, it may cause a creditor to view him as a risk, quite apart from what his FICO score is.

Message 7 of 10
Revelate
Moderator Emeritus

Re: What % of loan balance is ideal?

Apparently from two datapoints, 10% works very very well indeed for one's FICO 8 (and EX '98) scores.

 

I didn't test it all the way down, but I paid both my installment loans under 10% and that message is absolutely gone, and someone else recently got a major FICO boost to his already gold plated file when he passed the 10% line too.  New definition of Pay it Forward yo!




        
Message 8 of 10
NRB525
Super Contributor

Re: What % of loan balance is ideal?


@Revelate wrote:

Apparently from two datapoints, 10% works very very well indeed for one's FICO 8 (and EX '98) scores.

 

I didn't test it all the way down, but I paid both my installment loans under 10% and that message is absolutely gone, and someone else recently got a major FICO boost to his already gold plated file when he passed the 10% line too.  New definition of Pay it Forward yo!


That message is replaced by something else, right? What was that new message saying?

And while, yes in principle it is a good idea to pay down the principal on a loan, a loan is there for a purpose: To fund some major expense or purchase so the borrower can pay over time. Paying it too fast can result in cash flow issues that result in other borrowing payment problems, unless those payments come from really freely available extra cash that is not needed for other contingencies.

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
March 2021 $33k on $312k EQ 796 TU 798 EX 801
Message 9 of 10
Revelate
Moderator Emeritus

Re: What % of loan balance is ideal?


@NRB525 wrote:

@Revelate wrote:

Apparently from two datapoints, 10% works very very well indeed for one's FICO 8 (and EX '98) scores.

 

I didn't test it all the way down, but I paid both my installment loans under 10% and that message is absolutely gone, and someone else recently got a major FICO boost to his already gold plated file when he passed the 10% line too.  New definition of Pay it Forward yo!


That message is replaced by something else, right? What was that new message saying?

And while, yes in principle it is a good idea to pay down the principal on a loan, a loan is there for a purpose: To fund some major expense or purchase so the borrower can pay over time. Paying it too fast can result in cash flow issues that result in other borrowing payment problems, unless those payments come from really freely available extra cash that is not needed for other contingencies.


Of course you are correct that budgetting should be done by everyone, but if you're writing the check for financial reasons anyway, why not write it somewhat less if you get both a financial and a FICO win?  Reindeer games but why take a FICO hit if you can side step it?  Admittedly looks like you can go drop $500 in an Alliant or SDFCU shared secured loan, pay $460 of it right back, and then just sit on it for years at this point other than a transfer twice a year or whatever to keep the savings account from going dormant. 

 

6/5 3B for all 3 EQ / TU / EX @60% aggregate:

You have a public record and/or collection on your credit report.    
You have a short credit history.
The remaining balance on your mortgage or non-mortgage installment loans is too high.

 

Oh wierdsauce, damn it MyFICO why only give me two now for EX FICO 8 on a single report?  

 

7/4 EX @9% aggregate:

You have a public record and/or collection on your credit report.

You have a short credit history.

 

FICO v2 cause it has 4 and is the mortgage gold standard and because it had it on the 6/5 report in the #3 slot (note neither EQ nor TU did as expected for an 04 model):

 

1. You have a public record and/or collection on your credit report. [?]
2. You have a short credit history. [?]
3. You have missed payments or derogatory indicators on your credit accounts. [?]
4. You've recently been looking for credit. [?]

 

 

7/4 EQ @9% aggregate:

You have a public record and/or collection on your credit report.

You have a short credit history.

You have a recent public record and/or collection on your credit report.

 

ETA:

 

None of my FICO 8 industry options now have the negative reason regarding the installment loans anymore whereas they did previously, and there's even a small change in one of the industry options in terms of where my installment line negative fell on my score card.  Prior snapshots:

 

@5/24: @82% aggregate

EQ FICO 8 Auto: #3

EQ FICO 8 Bankcard: #2

TU FICO 8 Auto: #3

TU FICO 8 Bankcard: #3

EX FICO 8 Auto: #2

EX FICO 8 Bankcard: #2

 

@6/5: @60% aggregate

EQ FICO 8 Auto: #3

EQ FICO 8 Bankcard: #2

TU FICO 8 Auto: #3

TU FICO 8 Bankcard: #3

EX FICO 8 Auto: #2

EX FICO 8 Bankcard: #3

 




        
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