Yet another paid auto loan dropped my credit score post

[iheartwings]

My auto lease matured in October and finally just reported as paid/closed. It was painful (but not surprising) to see that my paid auto loan caused my score to drop 18-21 pts across the board. Incidentally, it is roughly the same number of points I lose if I let my cards report zero balances (but utilization has no memory so I get them back eventually). 

Anyway, I wanted to add some data to the mix. Prior to my loan payoff, my scores started to inch up the month prior (September). At that time, I had two loans:

1) Auto lease, September balance/loan total: $730/$26,309 = 2.8%

2) Student loan, September balance/loan total: $257,922/$245,828 = 105%

Combined, this totaled to approximately 95% utilization (B/L). With that I saw all 3 scores creep up a few points more than usual (I also had two new CC report in September without any change to my CS).  Then, when my lease reported as closed, I saw the drop, which many have posted about before. My utilization with the loan closing went from 95% to 103% (since I've also been making payments on my loan during this time). 

I assume in this case that I should regain those points when I hit 95% utilization, which I thought it to be odd given what I've read on the board about uilization cutoffs regarding installment loans. I figure I could share this info with the community for the next time someone searches (as I did) about loan payoffs and utilization. With that payoff, I lost 18 points on EQ, and 21 points each on TU and EX.

My question for other forum members is this, will the points I regain come back in chunks (i.e., will I see a jump when I finally hit 100% B/L and then a second jump when I get to 95%)? Or will the points kind of trickle in? 

If there are other pertinent details you need, let me know. 

If I continue paying my loans at the pace that I have been, I should be down to 100% in mid-January and 95% in early May, so I can report if I gain a few extra points with all of this. 

I'm gardening, and I don't anticipate any new credit in the future (maybe a mortgage in a few years, so I have no need to crazily micromanage my credit, yet). The only major change would be my BK falling off of EQ and EX, but I don't think the decreases will change based on my TU score (no utilization on cards results in a 12-13 point drop which was the same before and after BK fell off my TU report). 

[Revelate]

That's wierd.

Are your student loans in deferment?  If not, try a test in the name of science and pull the share secured loan trick... was a recent post which called mortgage tradelines not behaving 1:1 identical with other installment lines, maybe this is another example unless the student loans are in a different reporting state or some other change happened on your file.

[Anonymous]

The fact that your scores dropped from paying off your auto loan to me indicates that FICO scoring isn't taking your student loan into consideration for some reason.  If it was, it would still see an open installment loan and you wouldn't have lost any points as your overall utilization with your auto loan open verses closed was essentially the same due to the high balance of the student loan.  I agree with the person above that the share secure loan technique could get you back all of those points if this is the case.

[Anonymous]

Great insight by Revelate.  Like he and BBS, I am guessing that your student loans are in deferment.  Can you confirm that this is the case?

If so, this would be a real nice contribution by you to the forum to pull the SS loan trick.  You'd be supplying clear proof that FICO ignores student loans that are in deferment in its installment utilization calculation (B/L ratio).

Of course, there's no need to pull the trick if you know that you loans are not in deferment.  Let us know if you need guidance on exactly how to do the SS loan.

[Kenny]

My auto loan reported as paid and I lost 10 points on each bureau pretty much, as I don't have any more active auto loans showing yet.

Will be interesting to see if I get a ding or a boost when my new auto loan shows up. (Heck if it will, I went with a CU that I've not ever used before.)

[Anonymous]

I'd guess that your score would stay relatively the same +/- a few points.  While you'd be adding an installment loan to your reports which would help your credit mix, you'd be adding it at 100% utilization.  I don't think the benefits would really be seen until you pay down 30% of the loan, crossing the 70% utilization threshold.

[iheartwings]

So sorry that I have taken a whlie to respond...long day at work.

I've been reading about installment loans and utilization in this forum for a while, so I thought this was kind of interesting and wanted to put this data out there. I value your opinions and was confused by the aggregate utilization over the last few months.

My student loan (which is really two, but reported as one large aggregate loan by Navient) is very much not in deferment (trust me, my bank accounts know this all too well!).

If it's any help, I had 4 other separately reported student loans that I've paid off during various times since 2013. I didn't keep meticulous records as I do now, but I do recall my scores dropping with each payoff, but not by much and then those scores eventually recovering after a month or two. 

I'm not sure what other information I should provide. With the exception of my BK (which will age off from EQ and EX in the next few months), FICO always cites that my remaining balances on mortgage or nonmortgage loans are too high as the top (in the case of TU) or second top (in the case of EX, EQ) negative factor. I get these are often generic, but I always assumed they meant this albatross of a loan. 

[Anonymous]

Fascinating.  So: your student loans are not in deferment.  Moreover this has been the case for many months (with you making regular payments during that time).

Because of that, I think your original guess is worth considering.  Namely that FICO 8 has some kind of breakpoint for total installment utilization around 100%.  (It might be 98.99% or 99.99% or 100.99% -- but something like that.)  If you are over that breakpoint, FICO considers you higher risk. 

That doesn't seem that strange, now that I think of it.  People who's debt is >  100% of the original amount are (as a statistical class) probably riskier.  E.g. if a student is just graduating and is it at 105%, it is much more likely that he is jobless and may begin becoming delinquent in his payments than someone who has been making enough regular payments to bring his total utilization down to under 99%.

So to recap, the OP's conjecture (theory #1) is that there is a breakpoint for total U at or near 100%.  He observes that his total U went from 95% to 105% and he promptly took a sharp hit.

Another possibility (theory #2) is that student loans and auto loans are also scored separately -- a tiny bit like the way there is a metric for "individual utilization" for credit cards..  With this theory, his total U stayed about the same (> 90%) but one type of installment loan (auto) went from 2.8% U (for which he got a lot of points) to No-Open-Loans-Of-This-Type.  And it was this that caused the score drop.

If so it still might be revealing if our OP used the SS Loan trick.  He'd be creating a different type of installment loan from a student loan, with this new loan type being at < 9%.  If he got a lot of his lost points back, that would say something.  (And adding a $500 SS loan wouldn't alter his total utilization by more than a tenth of a percent.)

[Anonymous]

Very curious to hear what the veterans of the installment util research from last year think about this.  (Revelate, TT, others.)

[Revelate]

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@Anonymous wrote:

Very curious to hear what the veterans of the installment util research from last year think about this.  (Revelate, TT, others.)

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I think you summed up the two possibilities I see offhand well.  

Just as a pure conjecture, I somewhat doubt that being over 100% is any more penalty than being at 100% from an installment utilization perspective.  It certainly looks as though personal loans (which the SSL is) and autos are all in the same grouping, but question is whether student loans and mortgages are not.  Without more datapoints not sure it can be determined, though if the OP is willing, I'd still be interested to see opening a SSL and paying it down to $20 or whatever and see if the score snaps back... that would be a pretty convincing datapoint that SL's != auto/personal.

If it doesn't produce it, then I suspect the 105% you suggest might be a problem.  Interesting case study regardless .

ETA: Think it can be fairly safely said that anything between 100% and call it 90% is all in the same bin: we see points lost when a loan closes (refinance or whatever) and not regained when the new line is tacked on and it's usually a payment or two in by the time it reports.  Also there's been no short-term movement on longer term loans so I'm pretty comfortable in stating that one.  

And this all presumes nothing else changed... not lost on me that this *might* be categorized under credit mix if we're talking differences between installment lines, even if it's pretty conclusive no such split exists on the revolving side (HELOC's not withstanding).

I guess real testing would include getting the first reporting without having paid it down on the SSL trick.