Why?

[Anonymous]

I think what I have heard is the following.  The same account left both husband and wife's profile.  Both experienced the same score drop (same number of FICO points).  Wife had no other open installment loans.  Husband had exactly one other open non-mortgage installment loan.  OP, is that correct?

If so, what still sounds likely is that FICO saw the following scoring benefit ceased to be the case for both husband and wife:

        aggregate installment debt that was mostly paid off

In the husband's case, that's because his aggregate installment debt was now solely based on his personal loan, on which he may still owe the bulk of the debt.  In the wife's case it is because she had no open installment debt of any kind.  In both cases there was no longer non-mortgage installment debt that was mostly paid off.

As TT and I have mentioned a few times, it's difficult to do anything but guess because we have no way to know what the percentage owed was before the payoff (counting personal and auto together) and the percentage owed today (on the personal loan alone).  The OP should be able to answer that, but TT and I have no way to know (aside from speculate).

[vanillabean]

This installment utilization is beginning to grow on me. Now, the three loans are being paid at the scheduled rate, so it’s unlikely to surprise you that the small two year personal bank loan obtained in January is at about 70% unpaid, more precisely at 71.2% now and at 67.0% next month, so it’ll be interesting to see if crossing 70% makes a difference. Forget about any percentages involving the mortgage, as it too began in January and by sheer size diminishes everything else.

[Anonymous]

Great!  So as I guessed originally, here is almost certainly what happened.

In the last three or four months of the life of the auto loan, your total installment utilization was very low, less than 9%.  And this was because the auto loan was for such a big amount initially (compared to the personal loan) and it was almost all paid off.

Then the last payment was made on the auto loan, and it became closed.  At that moment your wife lost all benefit of having any open installment loans.  And in your case, your installment U went from 8% (say) to 72%.  And you both got hit with a score drop.

Mortgages are likely scored separately (as TT observed they are placed in a separate category of your credit report) so the installment U is probably scored as all non-mortgage loans together.

[Thomas_Thumb]

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@Anonymous-own-fico wrote:

This installment utilization is beginning to grow on me. Now, the three loans are being paid at the scheduled rate, so it’s unlikely to surprise you that the small two year personal bank loan obtained in January is at about 70% unpaid, more precisely at 71.2% now and at 67.0% next month, so it’ll be interesting to see if crossing 70% makes a difference. Forget about any percentages involving the mortgage, as it too began in January and by sheer size diminishes everything else.

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Data from posters suggests there are two breakpoints for installment loans: 70% and 10%.

If so, you likely crossed above both when the car loan was paid off. Theoretically you (but not DW) could regain 1/3 to 2/3 of your point drop when your personal loan balance falls below 70%. Would appreciate some feedback on results either way.

[redbeard]

My theory is much simpler.....

Credit scores like things to remain constant, change, especially high velocity and significant change, is penalized, at least for a short term.

When  big items are paid off (car loan), credit card balances that are normally 0 and dormant become active with balances left on them or even credit cards that normally have balances that are suddenly paid off, all represent 'change' to your credit report and traditional style.

Since credit scores are a reflection of the liklihood you will continue in a known pattern (paying or not paying your bills), significant change represents a departure from this pattern and can for a short term, lower your score until you get back on normal pattern.  This seems to be reflected in several point drop and then recovery over a few month type of stories I've seen.

Dan

[vanillabean]

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@Thomas_Thumb wrote:

Data from posters suggests there are two breakpoints for installment loans: 70% and 10%.

If so, you likely crossed above both when the car loan was paid off.

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 Yes, I did.

[vanillabean]

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@Anonymous-own-fico wrote:

When a second credit card account reported a balance, my EQ dropped from 840 to 834. Ok.

When a third credit card account reported a balance, the score didn’t change, although dreaded dormant.

When a car loan was paid off, the score dropped from 834 to 809, although not the last open installment account as the report also has a small personal bank loan.

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The first card, with a considerable balance which becomes relevant now, was mentioned only indirectly, but has now been paid off and reported, as has the second, leaving the third as the one card with a balance. The FICO 08 has increased from 809 to 817, a mere eight points, which pales in comparison to the drop of 25 points from paying off the car loan. It looks like FICO in 08 went overboard putting weight on installment loans. My FICO 04 for EQ at the same time is all the way up at 813 and, as we know, can get only a few points higher.

[Thomas_Thumb]

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@Anonymous-own-fico wrote:

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@Anonymous-own-fico wrote:

When a second credit card account reported a balance, my EQ dropped from 840 to 834. Ok.

When a third credit card account reported a balance, the score didn’t change, although dreaded dormant.

When a car loan was paid off, the score dropped from 834 to 809, although not the last open installment account as the report also has a small personal bank loan.

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The first card, with a considerable balance which becomes relevant now, was mentioned only indirectly, but has now been paid off and reported, as has the second, leaving the third as the one card with a balance. The FICO 08 has increased from 809 to 817, a mere eight points, which pales in comparison to the drop of 25 points from paying off the car loan. It looks like FICO in 08 went overboard putting weight on installment loans. My FICO 04 for EQ at the same time is all the way up at 813 and, as we know, can get only a few points higher.

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Nice Fico 04 score. It would be interesting to get some data on how reducing your PL balance % affects Fico 08 scores.

P.S. All my mortgage scores are stalled out - I kinda suspect not having an open or closed installment loan on file (just have an open mortgage) could be a limiting factor.

[vanillabean]

My EQ 08 is 821 with the small loan at 67%, so no apparent threshold at 70%.

[Thomas_Thumb]

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@Anonymous-own-fico wrote:

My EQ 08 is 821 with the small loan at 67%, so no apparent threshold at 70%.

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Thanks for the info on the small loan.

It does appear your score did rise another 4 points - not a major change but something. Certainly not anything that provides a lot of support to the 70% hypothesis.

Other posts indicate threre are two or possibly three thresholds for aggregate loan balance to total loan amount. The lower threshold potentially being 20% or 10%. I still get reason statements on some reports that say my balance to installment to loan ratio (now 41%) and total debt to credit ratio (around 30%) are negative factors.