TLDR: A lease (possibly applies to financed autos too?) that was “totalled” and reported to the credit agencies as an “Insurance Loss” will negatively impact FICO 8 scores; it will be categorized as a serious (>60 day) delinquency.
This happened to a friend of mine:
In 2017, I had a leased auto which was involved in an accident that resulted in the totalling of the car. The insurance company paid off the lease; and the leasing bank reported it to the credit agencies as a Positive Account in good standing which was fully paid off and closed. The bank also added a comment stating that this was an “Early termination/Insurance loss”.
All was fine until mid-2019 when suddenly my Transunion and Experian FICO 8 credit scores plummeted ~100 points (from 820s to 730s). (Only FICO 8, all other scores didn’t change.) MyFICO reported that there was a serious delinquency on my account. After much time and effort (and a subscription to MyFICO), I was able to determine that the comment of “Insurance loss” was triggering the FICO 8 algorithm to consider this a “delinquency”. I spoke to a CSR at MyFICO and they said that this is by design because “our high scorers don’t have this on their reports”, i.e. having an insurance loss was somehow some sort of negative flag.
Here’s what the comments on my credit report looked like for this account:
Equifax : “Early Termination” - score remained in 820 range (apparently “Early Termination” by itself isn’t an issue)
Transunion : “Early Termination/Insurance loss” - score dropped to 730 range
Experian : “Early Termination/Insurance loss” - score dropped to 730 range
I called Transunion and after a few times I was able to get them to fully remove that comment from this account. The next day my score went back up to 820 range.
I haven’t been as lucky with Experian, and even after disputing it they are leaving the comment there because it is factually correct.
The leasing bank (Chrysler Capital, now owned by Santander), also has declined to remove the comment since it’s factually correct.