(updated with scores) How much of a score drop from paying off only installment account?

[Pikaboo-icu]

Yikes..

I'm sure somebody can correct me if I'm mistaken but I believe the score hit is around 30 points.. 

[Anonymous]

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@Pikaboo-icu wrote:

Yikes..

I'm sure somebody can correct me if I'm mistaken but I believe the score hit is around 30 points.. 

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I saw that but that was on someone who had just paid off a loan that was already under 8.9% - surely its lower for a loan over 50% of it remaining? I don't believe I really got any noticeable score lift adding my personal loan and Experian's FICO analysis says that my balance on the installment loan is actually a negative factor currently.

[Pikaboo-icu]

Yeah you got me there..

I guess it's the point difference between having a loan at 50% uti and having no loan at all.

I don't know the numbers.. I'm sure somebody around here does.. 

[Anonymous]

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@Pikaboo-icu wrote:

Yeah you got me there..

I guess it's the point difference between having a loan at 50% uti and having no loan at all.

I don't know the numbers.. I'm sure somebody around here does.. 

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Its always a big yo-yo. Make one move that seems good on the surface like paying your debt and you get a ding. lol

[Anonymous]

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@Anonymous wrote:

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 I don't believe I really got any noticeable score lift adding my personal loan and Experian's FICO analysis says that my balance on the installment loan is actually a negative factor currently.

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That negative reason statement is common until the loan reports at under 8.9% utilization, as full points aren't realized until that criteria is met.  This is a classic case of switching a positive for a negative.  No installment loan and you get a negative reason statement pointing to that.  Then when you get one, that statement goes away, but now you get one that says your loan balance to the limit ratio is too high.  You'll drive yourself mad if you try to optimize everything, as the negative reason statements will always point to something that's impacting your score point or more.  A lot of the time I liken it to rearranging deck chairs on the Titanic.

[Anonymous]

The initial post can be viewed as asking (1) a practical question or (2) a theoretical one. 

#1: What is the the best practical thing to do?

#2:  How does FICO 8 behave if a person goes from an installment utilization of 64% to all loans paid off?  (No mortgages involved.)

The reason I think our OP is getting a lot of responses is that the post is filled with details that suggest that he's really concerned about #1 but is responding later by saying he's only asking about #2.  Thus the thread's length: people are responding to two different questions.

I'll try to summarize answers to both.

#2: Nobody knows for sure.  A lot of people believe that you are experiencing some scoring boost now by being at 64% (compared to having no open loan loans at all).  We ought to have test data (from several sources) for that but we don't.  So the best guess in my opinion is that 64% gets maybe a 15 point boost which will be lost in this scenario.

#1.  As I mentioned before, the practical concern is How do I best (a) protect my score while (b) reducing the amount I pay in interest?

The answer is still the same one I suggested earlier.  Pay it down but not off.  And if you wish to protect yourself against a score drop, you can do that by implementing Share Secured Loan Technique before the payoff.  Navy offers small SSLs if you are unable to create a large pool of savings.  The small SSLs have shorrter terms (e.g. 12 months) but that shouldn't impede you.  Just open a new SSL every 11 months.

From what I remember from other discussion threads (in which you have mentioned your unique asset limitation) you expect this artifical 2k asset limitation to last only for a few years more.  So: just create a ladder of short term loans (maybe three?) while the artifical limit is in place.

[Anonymous]

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@Anonymous wrote:

The initial post can be viewed as asking (1) a practical question or (2) a theoretical one. 

#1: What is the the best practical thing to do?

#2:  How does FICO 8 behave if a person goes from an installment utilization of 64% to all loans paid off?  (No mortgages involved.)

The reason I think our OP is getting a lot of responses is that the post is filled with details that suggest that he's really concerned about #1 but is responding later by saying he's only asking about #2.  Thus the thread's length: people are responding to two different questions.

I'll try to summarize answers to both.

#2: Nobody knows for sure.  A lot of people believe that you are experiencing some scoring boost now by being at 64% (compared to having no open loan loans at all).  We ought to have test data (from several sources) for that but we don't.  So the best guess in my opinion is that 64% gets maybe a 15 point boost which will be lost in this scenario.

#1.  As I mentioned before, the practical concern is How do I best (a) protect my score while (b) reducing the amount I pay in interest?

The answer is still the same one I suggested earlier.  Pay it down but not off.  And if you wish to protect yourself against a score drop, you can do that by implementing Share Secured Loan Technique before the payoff.  Navy offers small SSLs if you are unable to create a large pool of savings.  The small SSLs have shorrter terms (e.g. 12 months) but that shouldn't impede you.  Just open a new SSL every 11 months.

From what I remember from other discussion threads (in which you have mentioned your unique asset limitation) you expect this artifical 2k asset limitation to last only for a few years more.  So: just create a ladder of short term loans (maybe three?) while the artifical limit is in place.

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Thank you, I will probably look at the SSL route and just make sure I wipe out my checking balances. If Navy will let me chain SSLs back to back, we’ll that’s far better than the alternative of taking the hit in score. I will have to see what amounts for what terms and go from there. 

My Platinum should be coming in the mail today so I’ll likely do my BT tomorrow. It takes awhile for Best Egg to update loan status so I’ll probably know February or March and I’ll drop the DP in here. 

You are right that I had a mixed message because I didn’t really know what was more important to me - the score or the interest - I am throwing away money right now and if it drops my score, that doesn’t affect me at the moment at all. Once I get my BBVA SUB spend paid off, then I’ll open the SSL with Navy. 

But I also need to see what my December new account spree does to my AAoA. I was at 4y3m, definitely gonna take a hit with adding 3 new accounts and then I have stuff aging off next year (some bad, some good) so my scores are going to be all over anyway. 

[Revelate]

My old data suggests that a decrease will be small, ballpark 1/4 of the 8.9% line that is so well characterized.

Wouldn't worry about it, do what makes sense financially and that means kicking that 18% APR to the curb.  

Out of curiosity why can't you have more than 2k in countable assets?  SSL with the right provider doesn't necessarily tie up the funds... at least Alliant released the funds after the paydown and IIRC only kept 2x the remaining balance tied up in the share account., so out of $500 I only had a $10 deposit after playing reindeer games.

Is still worth looking into as a result, especially if you have NFCU access.

[NRB525]

It is a complicated situation you have OP.

The asset restriction looks like an important issue, because if you lose the healthcare benefits that gets really expensive. So I suggest that is priority number 1.

You are getting a new card, so most likely you should be set for required credit needs, right? With no other carried balances and general cash flow restrictions, credit apps, even with NFCU, should be no more.

With baddies from the past still holding down score, I would really wonder a) how much benefit ANY installment loan, even one below 9% will provide. Significant baddies create a low ceiling on your score, and their own weather in your file. Then there’s b) which is, the reality that you do have baddies. Any manual review ( presuming any credit app which seems remote ) is going to be asking about any baddies, not calculating the nuances of whether an installment loan might be helpful.

Long story short, pay off the high APR as soon as you can. Stay within the asset restrictions to keep your benefits. And forget about FICO scores, except for always paying at least the minimum on time, every month. Eventually you get past the baddies and that is where your real score gains will come from.

Good luck!

[Anonymous]

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@Revelate wrote:

My old data suggests that a decrease will be small, ballpark 1/4 of the 8.9% line that is so well characterized.

Wouldn't worry about it, do what makes sense financially and that means kicking that 18% APR to the curb.  

Out of curiosity why can't you have more than 2k in countable assets?  SSL with the right provider doesn't necessarily tie up the funds... at least Alliant released the funds after the paydown and IIRC only kept 2x the remaining balance tied up in the share account., so out of $500 I only had a $10 deposit after playing reindeer games.

Is still worth looking into as a result, especially if you have NFCU access.

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I have a Medicaid long term care waiver and part of the requirement of that program is having no more than $2000 in countable assets at any given time. The reason for this is because my SSDI is actually higher than the normal threshold for Medicaid eligibility. If I go over the $2000 asset limit, I can lose my long term care benefits which I can’t have happen right now. I still need them at least another year, probably two. 

As it is, I am not looking forward to having to explain why I opened a second checking account when I have my next review so I have been working around it by keeping the balance under $50 on my NFCU account. Such a low value account I won’t have to add to my report until my yearly review instead of having to report it within 7 days. 

There are a lot of hoops because I live in a state that doesn’t allow you to spend down for Medicaid eligibility. 

The decrease sounds pretty minimal. I went ahead and did the BT tonight after I logged on to get my account number and saw that I’ve paid $470 in interest since 8/2017 and this loan is due to continue until 8/2020. 

@NRB525 wrote:
It is a complicated situation you have OP.

The asset restriction looks like an important issue, because if you lose the healthcare benefits that gets really expensive. So I suggest that is priority number 1.

You are getting a new card, so most likely you should be set for required credit needs, right? With no other carried balances and general cash flow restrictions, credit apps, even with NFCU, should be no more.

With baddies from the past still holding down score, I would really wonder a) how much benefit ANY installment loan, even one below 9% will provide. Significant baddies create a low ceiling on your score, and their own weather in your file. Then there’s b) which is, the reality that you do have baddies. Any manual review ( presuming any credit app which seems remote ) is going to be asking about any baddies, not calculating the nuances of whether an installment loan might be helpful.

Long story short, pay off the high APR as soon as you can. Stay within the asset restrictions to keep your benefits. And forget about FICO scores, except for always paying at least the minimum on time, every month. Eventually you get past the baddies and that is where your real score gains will come from.

Good luck!

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 I had the same thoughts about all of my baddies and I really don’t believe the personal loan actually helped my credit but I set up the BT with NFCU tonight so we will see what happens when they report it. 

I definitely can’t risk my health benefits right now, absolutely couldn’t live without them and Medicare won’t cover home care services like my Medicaid LTC waiver does. 

Thanks for the advice everyone, I’ll report back with the results when everything is all said and done. 

Happy holidays to all!