installment loan scoring question

[ibebarrett]

So I know there are thresholds for different util % of loans, but is that overall or each account?

I have 5 student loans all at between 90 and 97%, ranging from 1k to 3.5k in original principal balance. Would it help more to just work down the total or take both 1k loans down to around $100 thenfocus on bringing down the big ones?

I'm on REPAYE so I would be able to keep the small ones at ~8.9% for almost another year until me new payment plan updates.

Thanks!

[Trudy]

To answer your first question, it is overall/combined.  Here's a thread with some information that may be useful.

https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-Loan-Threshold/td-p/5601868

[SouthJamaica]

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@ibebarrett wrote:

So I know there are thresholds for different util % of loans, but is that overall or each account?

I have 5 student loans all at between 90 and 97%, ranging from 1k to 3.5k in original principal balance. Would it help more to just work down the total or take both 1k loans down to around $100 thenfocus on bringing down the big ones?

I'm on REPAYE so I would be able to keep the small ones at ~8.9% for almost another year until me new payment plan updates.

Thanks!

---

1. It's overall.

2. It's best not to pay down to zero if you can help it, because once it gets to zero then you lose that loan from the denominator.

Example:

Starting point:

Let's say you have 5 loans average 2500 each for total 12,500; already paid down to 2000 each; installment utilization percentage is 10,000/12,5000 = 80%.

Now you have a total of $2000 available to pay towards the loans.

Example A: Pay off 1 loan, percentage is now 8,000/10,000 = 80%

Example B: Pay $400 towards each of the 5 loans, percentage is now 8,000/12,500 = 64%

BTW

(a) this overall installment loan utilization percentage is a big deal in FICO 8's and 9's, not so much in the older mortgage scores, which often do not react at all

(b) even in FICO 8's and 9's you don't get any really big score gains until you get down to 9% or thereabouts.

[sarge12]

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@SouthJamaica wrote:

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@ibebarrett wrote:

So I know there are thresholds for different util % of loans, but is that overall or each account?

I have 5 student loans all at between 90 and 97%, ranging from 1k to 3.5k in original principal balance. Would it help more to just work down the total or take both 1k loans down to around $100 thenfocus on bringing down the big ones?

I'm on REPAYE so I would be able to keep the small ones at ~8.9% for almost another year until me new payment plan updates.

Thanks!

---

1. It's overall.

2. It's best not to pay down to zero if you can help it, because once it gets to zero then you lose that loan from the denominator.

Example:

Starting point:

Let's say you have 5 loans average 2500 each for total 12,500; already paid down to 2000 each; installment utilization percentage is 10,000/12,5000 = 80%.

Now you have a total of $2000 available to pay towards the loans.

Example A: Pay off 1 loan, percentage is now 8,000/10,000 = 80%

Example B: Pay $400 towards each of the 5 loans, percentage is now 8,000/12,500 = 64%

BTW

(a) this overall installment loan utilization percentage is a big deal in FICO 8's and 9's, not so much in the older mortgage scores, which often do not react at all

(b) even in FICO 8's and 9's you don't get any really big score gains until you get down to 9% or thereabouts.

---

I may be wrong, but I think even paid off installment loans are figured into installment loan utilization until it falls off of your report. If I am right on that, and I am not sure I am, your example would still be 8000/12500 in the example A.

[SouthJamaica]

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@sarge12 wrote:

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@SouthJamaica wrote:

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@ibebarrett wrote:

So I know there are thresholds for different util % of loans, but is that overall or each account?

I have 5 student loans all at between 90 and 97%, ranging from 1k to 3.5k in original principal balance. Would it help more to just work down the total or take both 1k loans down to around $100 thenfocus on bringing down the big ones?

I'm on REPAYE so I would be able to keep the small ones at ~8.9% for almost another year until me new payment plan updates.

Thanks!

---

1. It's overall.

2. It's best not to pay down to zero if you can help it, because once it gets to zero then you lose that loan from the denominator.

Example:

Starting point:

Let's say you have 5 loans average 2500 each for total 12,500; already paid down to 2000 each; installment utilization percentage is 10,000/12,5000 = 80%.

Now you have a total of $2000 available to pay towards the loans.

Example A: Pay off 1 loan, percentage is now 8,000/10,000 = 80%

Example B: Pay $400 towards each of the 5 loans, percentage is now 8,000/12,500 = 64%

BTW

(a) this overall installment loan utilization percentage is a big deal in FICO 8's and 9's, not so much in the older mortgage scores, which often do not react at all

(b) even in FICO 8's and 9's you don't get any really big score gains until you get down to 9% or thereabouts.

---

I may be wrong, but I think even paid off installment loans are figured into installment loan utilization until it falls off of your report. If I am right on that, and I am not sure I am, your example would still be 8000/12500 in the example A.

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Yes you are wrong. It's only applicable to open installment loans.

[Shooting-For-800]

Student loans are basically neutral.

Your min monthly payment is really all that matters.

I would always focus on paying of ANY debt before I worried about student loans (at decent APR rates)

[Anonymous]

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@sarge12 wrote:

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@SouthJamaica wrote:

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@ibebarrett wrote:

So I know there are thresholds for different util % of loans, but is that overall or each account?

I have 5 student loans all at between 90 and 97%, ranging from 1k to 3.5k in original principal balance. Would it help more to just work down the total or take both 1k loans down to around $100 thenfocus on bringing down the big ones?

I'm on REPAYE so I would be able to keep the small ones at ~8.9% for almost another year until me new payment plan updates.

Thanks!

---

1. It's overall.

2. It's best not to pay down to zero if you can help it, because once it gets to zero then you lose that loan from the denominator.

Example:

Starting point:

Let's say you have 5 loans average 2500 each for total 12,500; already paid down to 2000 each; installment utilization percentage is 10,000/12,5000 = 80%.

Now you have a total of $2000 available to pay towards the loans.

Example A: Pay off 1 loan, percentage is now 8,000/10,000 = 80%

Example B: Pay $400 towards each of the 5 loans, percentage is now 8,000/12,500 = 64%

BTW

(a) this overall installment loan utilization percentage is a big deal in FICO 8's and 9's, not so much in the older mortgage scores, which often do not react at all

(b) even in FICO 8's and 9's you don't get any really big score gains until you get down to 9% or thereabouts.

---

I may be wrong, but I think even paid off installment loans are figured into installment loan utilization until it falls off of your report. If I am right on that, and I am not sure I am, your example would still be 8000/12500 in the example A.

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The scoring applies only to open installment loans. Most unfortunate as it has affected my scores more than once.

[UpAndComing74]

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@SouthJamaica wrote:

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@ibebarrett wrote:

So I know there are thresholds for different util % of loans, but is that overall or each account?

I have 5 student loans all at between 90 and 97%, ranging from 1k to 3.5k in original principal balance. Would it help more to just work down the total or take both 1k loans down to around $100 thenfocus on bringing down the big ones?

I'm on REPAYE so I would be able to keep the small ones at ~8.9% for almost another year until me new payment plan updates.

Thanks!

---

1. It's overall.

2. It's best not to pay down to zero if you can help it, because once it gets to zero then you lose that loan from the denominator.

Example:

Starting point:

Let's say you have 5 loans average 2500 each for total 12,500; already paid down to 2000 each; installment utilization percentage is 10,000/12,5000 = 80%.

Now you have a total of $2000 available to pay towards the loans.

Example A: Pay off 1 loan, percentage is now 8,000/10,000 = 80%

Example B: Pay $400 towards each of the 5 loans, percentage is now 8,000/12,500 = 64%

BTW

(a) this overall installment loan utilization percentage is a big deal in FICO 8's and 9's, not so much in the older mortgage scores, which often do not react at all

(b) even in FICO 8's and 9's you don't get any really big score gains until you get down to 9% or thereabouts.

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Question please.  I have $13K reserves to pay on my Auto Loan below to maximize my Mortgage FICO scores.

1.  Do Student loans factor into Installment util for the threshold percentages.  I currently have 3 Student loans and 2 Auto Loans.. Using whole numbers the  breakdown of Owe/Original Balance is:

SL-7000/13000-(Interest has it upside down)

SL-1100/1750---37%

SL-1700/2600--35%

Auto-800/18000-95%

Auto-21000/39000-45%

2.  Can you confirm that FICO 2,4,5 do not care about Installment Balances?  I could save my $$ and use it for the new house.

I am currently at a midscore of 712 and I am trying to push it to 720.  Credit pull is next month.  Closing is August 2021.

[Anonymous]

My only suggestion for the above situation would be to pay off the 3 lowest balance accounts which would be the $800 balance auto loan and 2 student loans.  That way you'd reduce your number of accounts with a balance by 3, a factor that could help your mortgage scores.  I wouldn't look at utilization percentage at all.  Like literally at all, as it's not a significant factor when looking at bang for your buck.  Just make sure your revolving utilization is in an ideal place, AZEO etc.  People often worry too much about installment loan utilization when quite often when it comes to "bang for the buck" it's very insignificant.  For example, one could pay down $15k in installment loan utilization and pick up (say) 15-20 points at best, where a smart $5k revolving debt paydown on that same profile could be worth (say) 50-60 points. 

[UpAndComing74]

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@Anonymous wrote:

My only suggestion for the above situation would be to pay off the 3 lowest balance accounts which would be the $800 balance auto loan and 2 student loans.  That way you'd reduce your number of accounts with a balance by 3, a factor that could help your mortgage scores.  I wouldn't look at utilization percentage at all.  Like literally at all, as it's not a significant factor when looking at bang for your buck.  Just make sure your revolving utilization is in an ideal place, AZEO etc.  People often worry too much about installment loan utilization when quite often when it comes to "bang for the buck" it's very insignificant.  For example, one could pay down $15k in installment loan utilization and pick up (say) 15-20 points at best, where a smart $5k revolving debt paydown on that same profile could be worth (say) 50-60 points. 

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Thank you! I understand what you are saying. I'm already there with Revolvers, therefore I have no improvement to make. I am AZEO and under 1% on the one reporting.

Are you still reccommending paying off the smaller loans then? Mortgage companies do not care about utilization. I'm so nervous if I pay them off my 712 mid score will drop below 700 and my rate tier changes.