Why does it seem like FICO doesn't care about Loans vs Credit cards?

[C_DUBYA]

In recent months I have been paying off a lot of debt and I began with loans.  I had several vehicle loans, and personal loans.  I have paid off around 30k worth in the past couple months and as things drop off as paid on my report, the scores dont go anywhere.

What am I missing?  

[FicoMike0]

Fico8 gives some credit for having at least one installment loan. There seems to be little or no score improvement for paying it down until you reach 9% agg balance. On normal loans, this occurs when there are few payments left, so the score boost only lasts a short time. This is why the ssl trick is popular.

revolving credit utilization has numerous thresholds at which points are awarded, both agg and individual. Eg, 89%, 69,49,29,9%. You should see some improvement when you cross each of these.

for best scores, get agg under 9%, highest individual under 29%.

id suggest paying the highest interest rate first.

Hope this helps. Hope

[Horseshoez]

@C_DUBYA, I generally keep my credit cards paid to zero and allow a latent charge or two post before the statement date, so for my five active cards I typically see one or two with a small balance on each monthly statement.  This keeps my scores pretty static except when all of my cards happen to report zero, then I hit the dreaded "All-Zero" penalty of anywhere from 15 to 25 points.

I told you the above to tell you this, I have a car loan about 2.5 yers old and as @FicoMike0 stated above, I have seen a small score boost (less than 5 points) each time I've crossed one of the thresholds he mentioned (so far 89%, 69%, and 49%); I'll cross the 29% threshold sometime this August or September and the 9% threshold in a little over a year from now, and I expect a similar bump.

Long story short, getting your "Revolving" credit cards down to near zero will most likely give you a much better bang for the buck compared to paying down your auto loans.

[FICOdawg]

What do you have for CC debt?

the algorithm hammers you if you have high cc utilisation.     After my divorce I paid loans off and only have cc balances that I'm paying off relatively quickly but my score took a big hit when all my debt became CC debt.     Getting the first of my two CCs below 49% gave me a decent bump.

[Kforce]

As others have pointed out the scoring is weighted to look at revolving debt more than loans.

[C_DUBYA]

Thanks all.  But why is it this way?  I have paid off 5 loans and my scores have literally not changed.  Over 30k in debt gone.  But FICO says, "Dont care bro".  

[FICOdawg]

The age of the loans and credit lines, your credit mix, and your credit card utilisation all come into play.

In some cases paying off a loan or mortgage actually causes your score to DROP.     

[Horseshoez]

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@C_DUBYA wrote:

Thanks all.  But why is it this way?  I have paid off 5 loans and my scores have literally not changed.  Over 30k in debt gone.  But FICO says, "Dont care bro".  

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Once again, loans in good standing do not weigh much on your FICO scores; as long as you have one installment loan (mortgage, vehicle loan...) open, you're good to go.  The difference in score between the various thresholds is pretty minimal.  The difference here is utilization, a new vehicle loan (which by definition is highly utilized at the beginning) for instance will hurt your scores a little, but if you have one or more credit cards with high utilization, it will hurt your scores a lot.

[C_DUBYA]

Ok thanks.

So right now I have 3 vehicle loans in my name, and 2 other loans for debt consolidation in the past.  I am planning to pay off 1 of the vehicle loans, and 1 more of the personal loans.  Based on this my score won't change. (good or bad)

At the same time my CC utilization is high at 72%.  In my same pay off spree, my utilization will over night go to 52%.  I assume in that case my score will improve based on what you are all saying?

[Horseshoez]

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@C_DUBYA wrote:

Ok thanks.

So right now I have 3 vehicle loans in my name, and 2 other loans for debt consolidation in the past.  I am planning to pay off 1 of the vehicle loans, and 1 more of the personal loans.  Based on this my score won't change. (good or bad)

At the same time my CC utilization is high at 72%.  In my same pay off spree, my utilization will over night go to 52%.  I assume in that case my score will improve based on what you are all saying?

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In your shoes I would make minimum payments on the installment loans and pay off the credit cards first; that's where you'll see a substantial score gain.