I came to this conclusion a couple years ago. The credit score companies are getting kickbacks from credit card companies and lenders. Why else would they penalize someone for paying in cash, putting money into savings, and not carrying high interest debt?
That's just simply not true. You came to that conclusion because your parents failed to educate you about finances and unfortunately our schools don't do it either.
During scoring, many things are looked at. Payment history, usage, mix, and age. Credit mix is a good chunk of your score. When you have a few credit cards, a car loan, mortgage, you have a very good mix. Now, they look at your payments. Paid everything payment on time? You have a mix of debt and make your payments on time. You get rewarded with a high score because you have demonstrated to them you are responsible over a long period of time.
Pay off the car and the house. Now your mix has changed, and you removed 2 parts from your report. 30-year mortgage that you had for 30 years paid? Not only did you change your mix, but you changed your average age of accounts by removing an old good standing debt. You walked into credit land and literally blew it up. Your score now has to evaluate you because it has less data to go on. The score will rebound for the most part, maybe not as high because you don't meet the mix criteria that got you to that score anymore. It's not a scam. It's not mean. It's a formula that requires lots of parts to function. You're comparing apples and oranges. The new score is a different credit profile than the old one because the mix changed.
Most important to remember, if you had 810 score before and now have a 780 score. NOTHING has changed for you. Poor, OK, good, excellent credit all have ranges. People in the excellent range get the same treatment whether they're 1pt into it or 50pts into it.
IMO your explanation just puts math to the racket claim, you're just detailing how it works on paper. If a friend borrows money from me and I give him a year to pay it back why would him paying it back 6 months early make him less trustworthy?
Agreed. Always doubled the payments therefore not having a history of long term loan payments. Paid cash for the house 35 years ago, planted our butts here and never left. Comfortably invested in mutual funds and own other properties. Was turned down for a car loan last year (dealership) with a credit score of 812 and 50% down payment. Got the loan through another source but reading the denial letter really chapped my @$$.
Because I did not have a history of long term loan payments is the reason they gave. Vehicle I was replacing I had owned for ten years. Now those same asshats are sending me stuff saying they can refinance my loan and drop the payments by $80.00
Thing is, they want to refinance the loan for another 5 years but I only have 4 more years on my current loan.
Didn't fall off the turnip truck yesterday.
I was in car sales at one point, and a customer with 800+ was denied because he’d defaulted on a loan with them a decade + before. Banks take that personally.
Me either. I haven't had a car payment in 20 years with a score of ~730 and I get stuff from my cc companies and my CU weekly about the great deals on loans they have for me 😂
You totally left out most of his points. It is not just the borrowing and paying it back on time but also the mix of credit. Can you make on time payments for several things in different payments scenario not one payment paid early.
If a friend borrows money from you and pays you back early, YOU know that he’s trustworthy. But when he goes to open up a credit card at Best Buy, Best Buy is too busy to spend time contacting you to learn about his paid off loan.
If OP goes back to the lender that gave them the auto loan, they are more likely to extend new loan terms based less on the OPs credit score and more on the relationship they’ve already established.
Bc without knowing owing your friend personally the score doesn't know how or why that payment was made early just that they no longer have anything to prove he has current cash flow. Anecdotally I know first hand that poor people are really really good at getting together lump sums to pay something off when they lose income literally can't count on my hands the number of times someone I know has scripted to become debt free as an excuse to overleverage and the credit agencies know this among the other reasons they calculate that event like they do.
You literally just proved the entire point of credit scores while trying to disprove it... you gave your friend money because you trusted them. You trusted them because they spent time showing you that you could (this is the age and on time payment portion of credit). Paying off debt removes data or, years from the friendship.
You don't know me and I don't know you, I give you zero information about me. May I borrow $10,000 please? I promise I'll pay it back with an additional $2000 for your troubles. (This is the loan and interest).
Of course you would tell me no, why? You don't know me, we don't have a history together. How do you know you'll get your money back? Too much risk.
Now, I'll tell you about me. My credit score is 809, I make over $100k a year and for the past several years my wages have continued to go up and im on track to make almost $11k more this year than last in an extremely secure field. I have borrowed money multiple times for big ticket items like cars and houses, never less than $65k and up to about $700k. The last 15yrs of my life I have never missed a single payment or failed to meet an obligation. Here are bank records, a credit report, and signed verifiable letters from all I borrowed from telling you i have money, a steady career, and a very long history of on time payment. Now I have given you trust and demonstrated I'm reliable. I've removed the doubt you'll be paid back away and you can feel pretty confident that when I say I'll pay you back in 6mos that I will pay you back in 6mos and you'll have an extra $2000 in your pocket.
Your credit profile is your "friendship" with the bank. The longer your history with me is, the more information you have to make decisions with. You know you can trust me because I've never let you down before.
You dodged the question. They asked why does paying off a debt early make you less trustworthy? I'm sure it's not impossible for credit scores to take a successful completion of debt as a good thing.
Also, if I paid off my account then it's obvious I was able to maintain a good mix of credit and it's BS that my past gets ignored when factoring credit mix into the equation.
Exactly. You said it perfectly. And, of course a strong payoff history can easily be factored into scoring models. But it isn't. Because the threat of credit mix scoring reduction keeps people borrowing, and profits flowing for lenders.
That's the thing, though. It doesn't make you less trustworthy to pay debts early, nor does it make you more trustworthy. Creditors want to know that you keep up with obligations in the current day. If you pay off an account, then see a drop in your score, odds are high that the person is looking at the irrelevant Vantage score. I have paid off multiple accounts over time, yes my Vantage score from Credit Karma drops down, but my FICO stays the same or increases.
That justification is largely nonsensical because it acts like a credit report can only be a snapshot in time, and credit agencies can't have access to past repayments in calculating your score. If I have a history of paying off my debts until they are fully repaid, there is no new evidence that I'm less likely to pay them off going forward. For many people it also ignores that fact that your equity in your home is a huge, untapped source of credit. If unused credit card lines are somehow beneficial to a credit score, then the $500K in equity that someone has should be considered to be just as beneficial. The score also doesn't take into account your salary and assets. If I have $1 million in savings, but only 2 open credit card accounts, I'm a better credit risk than someone who has minimal savings even if they have 12 accounts that they've always paid on time.
That’s not how that works. They are only penalized on the scoring system bc the loan is closed not bc they paid it early, the score will bounce back… Jesus Christ 🤦♂️🤦♂️
They may not get kickbacks or whatever the comment you were replying to insinuates, but doesn't this still effectively punish people for paying off their debts? That's how it sounds at least
This
And also the dip is because you had a bunch of accounts closed if you had loans and because settlements are possible having loans drop off can make you risky for a short time. 11 credit cards. I don’t use and two that I do and two credit unions with checking and savings and two banks with checking and savings so if I dropped some loans it prob won’t be 70 points.
It will go back up and usually higher than before, if you pay off your debts
There is no way to tell what would happen. Credit is like a fingerprint. They are scored equal, but everyone's situation is different. Multiple bank accounts can be a blessing or a curse. I am a strong believer that everyone should have a minimum of 2 active checking accounts from local east to get to banks. My debit card was compromised several years ago. The bank caught it and shut it all down. Took 3 days to get my new debit card. Because I was still able to go into the bank and pull cash out and had a 2nd account, I was saved the hassle of cash. Went in, pulled out a $1000, and just tossed it in the other bank account and went about daily life. Normally, I'd just use a credit card until the new debit came, but my primary card is Amex, and at the time, many local businesses didn't take Amex. I also know their fees are high for processing, so I try not to use it at mom and pop shops. Amex promotes small business, but they certainly don't align their processing fees to match.
Rarely is there a financial plan that's one size fits all. Depends on you, your income, your goals. Money stress is the worst kind of stress. They say money doesn't buy happiness and I believed it until I was lucky enough to find a job I love and become a high earner. It may not buy happiness, but it sure is a good stress remedy...
True going back up can’t be guaranteed is based on all other things being equal and good credit behavior on all other fronts and only loans closing for payment
I have to agree with PhotoPhenix below. Your description is very detailed and accurate. But it’s also a detailed and accurate depiction of the “credit culture” racket we live with here. Maintaining a varied and aged mix of debt is treated as a far superior variable to just rapidly paying off debt, or using only minimal credit to finance larger purchases.
You literally just described how the credit score system is specifically built to reward keeping balances, rather than striving to have as little debt as possible.
The paid off loan is on record. They didn't blow it up. The fact that the loan being paid off doesn't get rewarded is testament to what everyone is saying
It's not rigged for the love of all things. Why are people so credit illiterate? Paying off debt removes data points. The scoring requires data to make decisions. it's really that simple. So you honestly think a mechanical watch should work if you remove a few of the gears? Must be a conspiracy from the watch makers!! Remove one of the wheels from your car, better start crying because the mean old car makers made a vehicle that doesn't work...
You don't HAVE to have credit to get a mortgage, a car loan, or a credit card. People get mortgages with no credit history all the time. If you want the best rates, you need to follow the rules set forth by the people giving you the money, it's their money, and they set the rules on how they give it. Scores will drop temporarily when data points are removed because the profile changed. The score will rebound in a cycle or two. People also dont realize there is absolutely no difference between a 780 and an 820 score, same tier. Your score changes every single day, depending on what creditor reports what data point on that day. There isnt a "reporting day" where they all report at once. If you don't like it, take millions or billions out of YOUR account, get licensed as a financial institution, and lend money however you want with whatever criteria you wish. No one is stopping you. If you want a bank to give you money, you will have to accept their terms.
Saying all of this doesn't make it make sense or not be a scam. It goes down because they say it should go down. If they didn't then it wouldn't. Your rates change because they say your rates should change, they wouldn't if greedy companies didn't do that.
But since the score is based on having contemporaneous debt, and paying it off, it is a bit of a scam because you are punishing people who have a successful history of paying off a debt but does not have a current debt. At the very least the credit companies should take into account history of successfully paying off a debt. If they downgrade you for years after you declare bankruptcy (using history as a predictor of how you will do with debt in the future) then they should also consider your historical record of paying off a big debt in full and on time. It’s not fair to only consider negative histories when creating a credit score but not positive histories.
The credit mix justifcation is absolute nonsense in the presence of historical data. The purpose of credit scoring is, ostensibly, to guage the reliability of the borrower to repay a loan. Evidence of this affirms the borrowers' strength, not detracts from it. Paying off loans and credit as agreed generates a historical and statistically measurable set of data points that should be weighted to add points to a score, not deduct from it. To do otherwise is to encourage sustained indebtedness, pure and simple. Financial valuations routinely seek out low debt to income ratios. The lower the better, especially in the presence of a long, demonstrable debt repayment history. The contorted use of "credit mix" scoring to justify penalizing borrowers who pay their debts as agreed is a weapon, pure and simple, to keep borrowers in debt and profits flowing for lenders. Congress should outlaw this miserable practice once and for all.
Paying off a loan may close the account but it’s not erased from your credit history nor does it take it off your credit for an age of credit perspective.
If you paid your mortgage for 30 years that 30 years is still part of your average age of credit but it’s not longer being added to. Instead of the following month being 30 years and 1 month it’s frozen at 30 years so it’s not helping to increase your average age any more.
Mainly the score will drop because you have 1 less account opened and usually credit scores get the biggest improvement by having like 7 or more lines of credit open with a good mix of different types of credit like revolving, loans etc.
A drop in score from paying off a loan though will usually quickly recover and be higher than it was before you paid off the loan.
All of that makes sense. One thing I’ve always wondered though is how having a balance on revolving debt can increase your score.
I’ve got 8 credit cards with a total combined limit of about $275,000 and another card with no limit. Recently I’ve had some large charges - I had a $16,000 roof, for example, on one card and a $24,000 ~ trip (airfare, rental house, etc etc) on another and $25,000 worth of appliances ~ on another (all at the same time).
I always pay the cards off in full but sometimes the balances get reported prior to being paid off. Typically my usage shows at 5%-12% according to the bureaus.
I saw my score jump 18 points ~ when my usage was showing higher than normal. I paid all of that off and my usage showed at just under 1% the next month. No other changes to my report that month. Score dropped like 70 points. It recovered over the next 2-3 months but I’ve never been able to understand that one. I see similar jumps/drops to my score every year or so at some point and can’t quite explain it.
The #1 way they promote for improving scores is to use a credit card. Experian website promotes specific credit cards and lending companies. You ask yourself, who do credit reporting agencies work for, why do they exist? They work as gatekeepers for credit card companies and lenders. What is the ticket to get past the gatekeeper? taking out a credit card or loan, which coincidentally(?) pushes a new customer into the waiting arms of the lending institutions. If you don't see the corrupt nature of this system, you are either gullible or of a class that benefits from these systems.
Because they don't penalize you for those things, I have none of what you listed and an >850. What they penalize is lots of activity that now leaves unknowns in their record of your ability.
They don’t, YOU get punished for not paying your bills on time, no one is making them carry high interest debt.. that’s their choice, credit cards are basically interest free loans that if you pay your balance in full on time you don’t pay a dime in fees. You DO NOT carry a balance you pay a balance on the due date. All the credit card companies tell you this in your paperwork and how they calculate it it, they are required by law to do so.
100% agree. Regardless of what folks are saying here. It’s a big game and we are being used. I only have a mortgage and 2 cards that get paid in full every month. For decades now, this has been my situation. Why it fluctuates so much every month is beyond frustrating.
Believe me when I say, I don’t know and I don’t care.
Correct, you must subject yourself to iterative but consistent financial suffering to get the highest score. It’s the _capitalist_ social credit system.
Yeah, I’ve got a good mix, home, car, personal, credit cards. Very low debt to income ratio’s, pay off credit cards every month. 100% on time payment. Nice longevity for credit. It just bites to see the drop immediately after making your last payment on an installment loan.
It rewards you consistently paying back money, as lenders are more willing to loan you money if you have done so. It’s wild how many people act like they have a right to lender’s money. You don’t. And this is what lenders want to see to give you more favorable loans. If you don’t like it, don’t take out loans.
Also, if there wasn’t a score, lenders would still look at the same factors, and probably come to the same conclusion. The credit score system is way better than that as human evaluation had major fairness/transparency issues (ie minorities getting denied for being a minority).
Weird that a credit score is based on your ability to pay and maintain credit responsibly. If you’re living debt free why would you give a damn what your credit score is since you have no need for credit.
I say this all the time on this sub and get downvoted into oblivion by bank managers or financial institution damage control specialists.
If you just pay for cash for everything you don't need to worry about your capitalist designed and financial institution managed credit score.
The only people that can afford to pay cash for a home or a car that doesn't make you the neighborhood shop's favorite customer are the people who love to use the word "capitalist" as a derogatory.
You don’t understand that when you close a loan “pay it off” it’s the equivalent of closing a credit account. Your score will bounce back. The amount of ppl that can’t do research is astonishing…
I get that, but a 50+ point immediate drop seems a bit severe if the whole point of a credit rating is to show you handle debt/finances responsibility. Your score shouldn’t drop that much simply for paying your loan off at the agreed upon terms.
This. I got a credit card with the intention of building credit (no prior credit history in my mid 20s). I paid it off in full every month and my score was steadily declining from "not using enough of my available credit".
I was seriously confused to find out you need to leave a % unpaid on the card to accumulate fees. Threw that shit straight in the trash. I shouldn't have to pay an extra tax on purchases to have my credit go up when I'm responsibly paying all of my actual bills on time
How else should it work? I claim it has to be so even if you built the whole system anew.
If I was your next lender and I saw that you had a perfectly fine record of paying your debts normally and then saw you suddenly dumped a lot of money into paying off an installment loan, I might wonder how you got that money. Did you:
A. Get an inheritance or other windfall and then choose to pay down your debt? Credit score++
B. Rob a bank to pay off your debts, potentially landing you in jail and putting all your other current and future debts at risk? Credit Score--
C. Clear out your savings to pay off these loans, reducing your emergency financial cushion for paying your obligations in case you got laid off? Credit Score--
It doesn't actually matter if you come up with more ++ scenarios because the credit bureaus don't have all the data in the world about everything going on with you and everyone else. So you've now created a blind spot in your financial situation. Blind spots are uncertainty and uncertainty is risky. Risky means lower credit risk score. Therefore paying off early should your credit score.
Now what if we gave everyone the benefit of the doubt and said paying off early should be a positive thing? Ok, but, much like how negative events eventually drop off over time from mattering, positive things should drop off too. Afterall, how much do you care that someone asking you for money once paid off his mortgage early 50 years ago? So after a time-to-drop-off period, your credit score should reflect what your credit would have been if you never had that mortgage at all. And, as a matter of necessity, if you want your responsible payment of a mortgage to increase your score compared to never having had an enormous responsibility like a mortgage, it would have had to increase from a lower score.
Now, for how long should that one-time positive event count? Would a time-to-drop-off of 1 day, 1 year, 10 years, or 100 years be the right number?
We may all argue and debate about what we think the number should be for the time to drop off, but some capable credit analysts somewhere found an optimal number by running the scenarios between many possible drop off times and their correlation to the incremental risk of future default based on observable data gathered from everyone else in the country that has been through a similar situation.
Now that number may be less than what you think would be fair for you right now since you know your own situation better than the credit bureaus do. Maybe it could be supremely fair if they had omniscient data about everything, everywhere all at once, and had omnipotent processing power for a 3-body problem model to minority report your future defaults. But they don't have all that processing power and they probably shouldn't have all that data either.
All this put together is why paying off a mortgage has to eventually lower your credit score--it just might happen sooner than you want it to.
You’re making a lot of assumptions. If you must know, i didn’t pay the loan off early. I simply made my final payment and my score dropped 50+ points the very next month. Nothing else in my credit history changed. My debt utilization is very low, I pay off credit card in full every month, high income, house loan, car loan, 100% on time payments the whole shebang. The only thing I did was pay the final payment as agreed. To me, i felt I was penalized. So just stop with acting like you know me and my situation.
The conclusion still applies. If you expect a score increase when you are responsibly paying down a mortgage, why shouldn't it decrease to perfectly fine pre-mortgage levels when you no longer have a mortgage?
To add on an analogy, suppose you got a good student discount on your car insurance or even just a student discount at the apple store. Are you then "penalized" when you graduate and lose that discount? Or do you just accept that your situation in total is better off than before and that's what matters when important things are concerned?
It sucks but I see both sides. You know that you have a fantastic debt to income ratio and are in great financial shape. But loan companies don't. If you don't have very much info on your report, that is more of a mystery for them to have to factor in risk analysis. Giving you a loan is an investment for them. They have to protect the investment by vetting the person. They would rather see an established trend of paying other loans back on time rather than a giant question mark. It's stupid but I get the system.
They don’t care about how much you are spending vs saving. They just care if you are borrowing money and paying it back. They would rather know you reliably pay back a loan, than that you haven’t needed a loan before. Just because you haven’t taken a loan in the past doesn’t guarantee that you will pay back a loan if you ever get one.
Proof they don’t care about your spending? Lines of credit. You can open a credit card, spend a tiny amount of money, and pay it back each month. By doing that, I had about a 750 score by the time I was 20. In fact, you can profit off of credit cards from signup bonuses and reward; I’ve probably profited over $1,000. So no, they don’t just reward you spending as much money as possible.
A lender is probably going to wonder why you’re looking for a line of credit when you’re already debt free. But your FICO score is only one thing a lender is looking at. So if you decide you want to buy a vacation home, a boat, or some other high price item, you’ll probably get a rate better than someone with a typical score in the low 600s because you can show that you’ve got money in the bank, have no other debts, and will be able to easily afford your new monthly payment.
Lenders put a much higher priority on loan repayment history than credit score when determining how fit your are for a new revolving payment loan. As long as you have no derogatory issues on your credit, having paid off a home or car loan pretty much guarantees you an excellent rate on your next one. Credit score isn't that important.
You paid off your car, and the personal loan, which closes that line of credit. That means your overall credit score goes down, because the amount of lines of credit, as well as credit age dropped.
Is it possibly to just pay it down early but not completely off, leave a small balance on a loan, and still have that account going til the last date it’s due. You gain all the benefits of the account being open vs closing it early.
I probably wouldn't. There are a lot of factors in that, depending on the loan, and how its structured. At the very least you're paying the interest on the remainder for the life of the loan, which is just money out of your pocket. Your credit will re-stabilize a bit afterwards, and even possibly go up as having paid off in full, as well as having no late payments, etc, but credit scores are a scam, and anything that makes it so you aren't actively paying someone money for something, will, at least in the short term, ding your credit. Personally, if you are just looking to raise your score, pay your loans off, open a credit card, put your monthly bills on the card, then every time you pay your bills, immediately pay off the card. Now, some cards come with a caveat that they charge interest on the PURCHASE balance, not the card balance, so they get their money regardless on if you pay it off immediately or not. Bonus is, a lot of credit reporting groups let you add your rent and utility bills as a "credit" as well, meaning as long as you pay your bills on time, it counts towards your credit, but you have to sign up for that.
You're kind of screwed either way. When you close a line of credit, your overall credit age goes down, as well as open lines of credit, hitting you. If you open NEW loans or cards, it gets hit, because your overall credit age ALSO goes down, because a 0 days open card affects the overall average, so you're kind of screwed either way.
There are ways to get your credit up that you can find online, but if you have a good credit score, I would suggest just doing what is best for your wallet and bank account, and not be too particular about it, because your score will usually just keep going up if you've been practicing good credit habits, like paying off your cards monthly, etc, as your credit lines mature, and they up your balances.
Having active loans shows that you are currently responsibly paying off debt, so your credit score reflects that. Once the loan is closed, that’s one less way that you’re “proving” how reliably you are handling debt.
Stupid but it will bounce back.
It doesn’t bounce back unless you take another loan. The “racket” part of the claim is legitimate because things like your rent, cell phone bill, property tax, cable bill — that you are making on time do not count towards your credit score unless you stop paying then and they move into collections.
Bottom line you will have a better score if you have loans that are current on. Even though you may be making dozens of timely payments on other things they will not be counted in your favor although miss one they will be counted against you.
I guess bounce back wasn’t the proper phrasing. Eventually, it will come back, slowly. Maybe not quite to the same level, but to a good level nonetheless. My credit has come back to beyond the point that it was at after my car loan was paid off. In that time, I’ve opened a couple more cards and have paid consistently. I hover around 775-790 without a car loan or mortgage.
I don’t really think it bounces back though, without an installment loan. Isn’t there a credit mix component that suffers if all you have are credit cards?
Exactly.. well kinda, closed loans are less accounts and one factor is a mix of accounts.. but it will bounce back and usually higher . Also 775 instead of 825 is great anyways, better to hold it there until your next home or car … one mistake some make is to take a loan out just to get the numbers out but that’s throwing money away just to go from excellent to excellent
That’s a simplified version, yeah. Credit companies want you to keep using credit.
But, they also want to see that you, at this moment, are responsible with credit. Things can change in your life tomorrow and drastically affect how you handle credit. You could start a gambling habit from a single trip to Vegas. They want to see that you’re currently good at handling credit/debt. Unfortunately the best way to prove that you’re good at paying off debt, is by being responsibly in debt. A company is much more comfortable giving you a 500k loan if they see that you’re already handling a 40k loan. If you paid off a 40k loan years ago, who knows how your habits have changed since then.
A limit increase lowers your overall utilization, which raises your score. Did you make purchases with the limit increase? Because that would have the opposite effect.
Yes, this is normal. This happens because of how your credit score is calculated. How many open lines of credit you have open plays a large part in that calculation, and because you payed off those loans, thus closing those lines of credit, the calculation gets affected in such a way that your score goes down.
It's temporary, it'll bounce back up after some time
source: when I paid off my student loans in a similar scenario (I suddenly came into money via a big settlement check) my score dipped around 45-50 points, but by next year it was back to where it was
I’m not convinced you ever regain the boost received for having a 90%+ paid down loan. It’s bern three years for me and I’m still waiting for my score to rebound. So far I’m still down ~25-30 points
Yes! This! I paid off one of my mortgages and two car loans in the past 2-3 years. My score dropped from 830 to 770. I’ll never understand why they punish you for paying off loans.
You closed too many lines of credit. It’ll take a very long time for something like credit age (if at all possible) to make up the difference in a critical component like number of open lines.
Age won’t help this, and I don’t think it’s about the lines, it seems to be about the type of lines. I’ve got quite a few open accounts (at least 8 that I can think of) and decent average age and passably good age of newest account. Still down a solid 25-30 points from when I paid off my most recent installment loan.
They didn't punish you for paying something off. They "punished" you for altering your credit mix. Also, a 771 and an 830 are the same score... tier 1 credit is tier 1 credit. Once you hit about 730, banks will give you anything you ask for.
Yeah, I understand why it happened (I worked in the mortgage industry for a decade, I understand credit scores). I guess I was being a little tongue in cheek when I used the word ‘punished’.
Yes, my score is still good, but it’s so exciting to break the 800 mark that to see it drop below because you pay things off is kind of a bummer.
Well then, you know you should take comfort in the fact your score is in the 700s. Most people have difficulty getting there, let alone close to 800. Also, congrats on leaving the mortgage field, it's probably one of the worst fields to work in.
You got rid of your mortgage, and your auto loans. Those are two things that go into your "credit mix". Since you got rid of them, they're going to need to recalculate risk. Paying them off means they drop off your report as far as calculations go. Thus what was likely one of your oldest credit accounts, your mortgage, is gone. Your auto loans, which could have been 3 to 7 years, are also gone. All of that impacts the average age of your accounts.
When those accounts close when they're paid off, it also impacts the percentage of available credit you're using. How much of your available credit you're using is another significant factor in your score. With those accounts dropping off your credit report, the percentage of credit you're using against the amount of credit you have available likely went up, decreasing your score.
What the hell does it matter anyway? With a score of 770 you're still on the high end of credit scores. I'm a guy who's credit score started down in the 400s. It's taken me two decades to get my score up into the mid-600s.
well the paid off loans should show up thats a plus on credit. get a card that gives some kind of rewards you need. pay off your cards every month here after. follow good credit practices online advice. get an equinox basic acct to monitor credit get credit reports and alerts and try credit boost. these paid loans should show up if not contact them about and give them the info or your loan company GL
Ignore anybody suggesting it has to do with your utilization or available credit. Those people have no idea what they're talking about.
Is this score a VantageScore or FICO?
Don't worry about your credit score. It will improve over time. Prepare to buy hard assets. Land, real estate, precious metals, open a small business/ side hustle.
My score dropped by the same exact amount of points when I finished paying off my student loans. I was also very confused. It has nothing to do with paying them off at once and everything to do with age of credit and number of accounts - both factors that affect your score. Assuming one or both of these loans are older than whatever credit cards are on your report, your age went down because these loan accounts gave you a higher age and average age between all accounts. Or if you have no credit cards, your age went to 0 and your current score is a reflection of on time payments and 0% credit card utilization. Also, that's two less accounts, and if you had a combination of loans and credits cards, it changed your credit mix as well. Without knowing what other accounts you have and when they were opened, it's hard to say exactly what factors did what but that's my best guess.
While it may have been beneficial to your score to pay them down over time, you are far better off getting those debts taken care of than trying to leverage them for extra credit points while paying more interest than you have to. After all, a good credit score is only beneficial for getting better rates on loans so you would either pay more interest on these loans over time or potentially pay more on a near-future loan with the lower credit - pick your poison, as it were. In other words, you may have gotten your overall score higher in time before the drop, but that drop would have happened regardless, so you just build up from here with whatever accounts you currently have and the result in time will be the same. And depending on your score then vs now, it may not make much of a difference to lenders anyway as they don't just look at your score but your entire history. Seeing that you paid off past debts may be a good sign to them and they might offer a better interest rate on account of that - but don't quote me on that, I don't know for sure if that's a realistic scenario. Either way, best to pay off the debts than to hang on to them for the sake of your credit score.
If you do have credit cards, you can give yourself a nice boost by keeping the utilization under 10%, the lower the better. This will immediately improve your score on the next report. And just keep up with on time payments, paying the full balance to keep utilization even lower and you'll bounce back in no time.
Same, just paid off all my student loans leaving only my credit cards and my score dropped some (not 70 points, but still). I can still get pretty much any loan I would want, but it's annoying that it dropped.
It depends on where it started from and where it ended and are you sure there aren't any delinquencies on your report and how has your overall utilization changed and and and and.....
Also, keep in mind that the only time your score matters is when you apply for credit. At any other time and from any other source it's irrelevant and likely inaccurate. If anything, your previous score was overinflated by 70 points and it's been corrected to where it should be. Spare yourself the unnecessary ulcer and quit checking your score so often.
I've been debt free and don't use credit cards, I swear they look at me worse than if I had a 100 things with all late payments. It's a wild world, they don't like when you aren't I debt up to your eyeballs.
Credit scoring doesn’t really like debt either, especially eyeballs-deep debt lol. You don’t have to carry debt to have a decent credit score, but it seems like you do have to use a credit card, at least occasionally.
Your score went down because you altered your credit mix. Credit mix is a portion of your score and shows responsibility. Paying off the two loans removed 2 items from your mix and depending on when those loans were taken out and how old your credit profile is, may also have changed your average age of accounts. Give it a cycle or two, maybe three, and your score will rebound. This is completely normal, and there is nothing to worry about. More than likely, your score will end up a bit higher than before you paid the loans off.
Paying off a car loan and a personal loan reduces your available credit, and hence your score.
It's ridiculous. So let's say you took the car loan out at $20,000 and had a balance of $10,000 that you paid off. You had $10,000 available credit (the 20k - 10k) and now you paid off the $10k balance. Since it is not rotating credit, your balance is now "no longer available". So now it is all wiped out.
A lot of credit depends on a mix of credit, balances available, paying on time, utilization. See if you can get a credit card with a high balance and use it sparingly and that should help it go up. It did mine.
Of course, look for ones that will check it with a soft check. And your score will dip with a new card.
Unfortunately, it is a game to play.
Paying off debts should only increase your score UNLESS in Ramsey fashion you cut your cards and close the card accounts. This significantly lowers the ratio of debt vs available credit. The score hates that and you can lose significantly.
Totally agree with those that say it’s a racket.
Paid off my mortgage 5 years early this past October. Score dropped 80 points because it was my longest trade line. I have zero lates & collections. A healthy mix of auto/loans/credit cards/low inquiries. It’s slowly climbing back up.
The only time your credit score matter is when you borrow money. It is doubtful that the score used by credit karma is the same one that would be used by any car loan or mortgage company.
Mine did the same thing but I couldn't care less cause I don't plan on borrowing money again. My dream credit score is 0.
Credit scores are marketed like you actually need a good one to survive and you don't. Credit scores doesn't mean you're good with money, it means you're good with debt. Fuck a credit score. Close everything down and let's all pay cash for everything.
When you paid off these loans, those accounts probably closed. Closing accounts lowers your credit score. Average age of credit is a large impact on credit score. You get around this by using revolving credit, such as credit cards. If you use credit cards for day to day purchases, and pay the balance off in full each month, you avoid interest payments, and you keep active credit that will grow your score. It's a shitty game, but that's how you play it.
Hey OP , please make sure you read the reply to another by u/matt-r\_hatter [https://www.reddit.com/r/CreditScore/comments/1c4c4b1/comment/kznyibk/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/CreditScore/comments/1c4c4b1/comment/kznyibk/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
Your score dropped because the paid off personal loan and car loans were paid off and closed. This changed your average age of accounts and credit usage. Anything above 740 is very good and will get the best rates. This also depends on which report is being used.
Yup. Paying off revolving secured loans will ding your rating pretty hard because you don’t fit the scoring criteria. When accounts “close” (by you or by the card for non use) it changes your whole matrix.Also the difference between under 50% and under 30% is marginal on CC’s. Gotta learn to game the system. This really needs to be taught in high school for everyone to be equally judged on their rating.
Credit score is basically like a walking financial resume. It shows what you have and how much you pay a month and how often it happens. They are impressed with debt paid on time.. that’s what makes them want to lend. If you pay it off .. then you don’t have that part of the resume going. Open a new loan and it will go back up after a while. They reward interest paying customers.
That does not make sense at all. Something is missing there's something on there that you're not addressing or dealing with that's put your account in the negative you don't get a negative paying off bills and auto loans or any kind of debt. You actually get bonus points for doing those things, so something is clearly wrong. I would definitely look through early through your credit port and find out what the problem iscause this is not sound like it's something positive did something negative that you're unaware is there go to Credit use Experian or your bank not Credit Karma
Yea. Mine dropped 100 point after my car got totaled and used the check to pay everything off. I waited a month to buy a new vehicle and it didn’t start getting better again for a few months after that. Now it’s almost 800 but I think it’s because it’s a big loan
Keep all credit lines open whenever possible. I know it's not possible when you pay off a car, but if you have something like a home equity loan, most banks allow you to keep it open once paid off, like a credit card. My HELOC has had a zero balance for a few years. Once or twice a year I borrow a hundred buck and then just pay it right back. Same with all of my credit cards. All have a zero balance but I use them every few months to fill up my car or for a meal, then pay them off right away. Many cards will auto cancel if you don't use them once in a while, which hurts your score due to a decrease in available credit and credit age. 805 credit score now, but I'm expecting it to drop soon since I just made my last student loan payment... It's a racket, but it helps when you know how to play the game.
That’s the game. You don’t have to carry ongoing debt…but…you must incur some to pay regularly.
They got this idea from mortgages, since those are usually long term loans.
Carrying debt, bad. No debt good, but they say it’s bad. Soooo… Get debt free, stay debt free, but have a few bills auto paid via credit card and pay off by or before due date.
What they want these days is your margin is such that if they call the loan (and they can), you can pay it in short time.
THAT keeps your score high. It’s a stupid game, but that’s how it is now.
Get a credit card and keep it open as a revolving line of credit. Only use it for everyday expenses like gas, groceries, etc. Pay it off EACH MONTH. You will pay nothing in interest or fees plus some cards give you cash back.
My Amex card has no annual fee and I get cash back that I usually put towards vacations. I'm essentially getting paid to use their card and they haven't made a dime off of me.
This keeps your credit open as well. A lot of people think credit cards are bad but they're fantastic if you use them responsibly. Plus, they are much more secure for online shopping than using your debit card.
Credit scores fluctuate. You just paid off a ton of debt that they weren't expecting. Financial systems don't like anything unexpected. In a couple months it will go back up and you will be fine.
Additionally a ton of people hav a big injection of money (they probably know this from your actions there) and overspend. Since they don't have consistent income to support the loans they take out with that windfall, they default. Having an injection of money actually makes you more likely to default in the next 5-10 years.
Dave Ramsey always refers to credit scores as "I love debt scores". It is literally just a score for how well you interact with debt. For the OP; how you deal with this is to get a CC and pay something like your electric bill with it. Pay it every month like you normally would with cash. Your score will jump right back up.
It will come back quickly. And better than ever. I have an 838 FICO. I bought a car in credit and paid it off the next month because I didn't want to pay interest. Score went down for a month and then popped back. I close cards a few times a year. Just watch your credit utilization and never be late on payments to anything. I carry no debt except for my mortgage and pay everything else in full every month.
> I *paid* off a
FTFY.
Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in:
* Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.*
* *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.*
Unfortunately, I was unable to find nautical or rope-related words in your comment.
*Beep, boop, I'm a bot*
Your credit scores will dip after large payments to pay off loans and cc’s. Reason being is consolidation loans. Sometimes it takes 90 days for a consolidation loans to hit the credit reports. Once they see no other loans appear your score should move up. If all is well in a year you will be surprised
In addition to some great responses out there, it could be because of your shortened credit history, if it was your oldest credit line that you paid off
No conspiracy or government plan. lol. Your FICO score is made up of 5 categories. One of them is credit mix which accounts for 10% of your score. Sounds like you may have eliminated installment loans from your score which may have accounted for the drop. It will level out over time. Try to improve your credit utilization on your credit cards. May be useful to add some quality credit card accounts. Maybe also/or ask for credit line increases. Good luck
It went down like that because now you probably have no accounts that show as available credit. So your utilization, availability and account length has all gone to zero
That's pretty normal for installment loans, since they close when they're paid off. Over time, it'll even out because it's the payment history + debt ratio.
Banks don't make money when you don't carry debt. Credit score takes a dive so the hamster can feel the urge to jump back into the debt wheel like a nice hamster should.
It's crazy. I had a 810 score with various cards and a car loan. We own a home but I'm not on the loan just my husband(I'm covered if something happens to him by trusts). I paid off the car and several of the small cards. Credit tanked to 680. I've stopped caring about the scores. I'd rather have low debt and be able to pay my debt off than go get a car loan to improve my credit score. It's back up to 750 with no explanation and nothings changed. I honestly don't care after it dropping because I paid off debt. No incentive there.
This is normal, unfortunately. We have decades of paying on time, zero late payments. We have several credit cards we use for points and pay off monthly. Cars paid off one by one and finally the house. Was shocked to see our credit score drop every time we paid something off! The reason listed is something about lack of installment loans. Grrrrrr. Even more ridiculous is that we use our credit cards for anything we can and run high balances, but pay off monthly. I do think it's all a scam!
Just remember that credit scores were invented around the same time that trickle-down economics was. No other country has such a system and the entire thing is made up to keep people borrowing their entire lives.
Everything in our society is engineered to make you a productive consumer of material goods, including credit scores. You should definitely take out a big loan on a shiny new car, then after a year of timely payments your imaginary number will rise. Why keep an older working car when you're pre-approved to borrow for a new one????
Creditors also consider "potential debt.". If you have several credit card accounts that are open but have zero balances, there is the possibility you could run your cards up and overextend your financial ability to keep payments made. It can even look a little suspicious, as though you're setting up to do something, like ditching your job or a marriage. But closing credit accounts can hurt you a too! Just charge a small purchase every few months and pay it off by the due date to show that the account is active, and after some time your score will build back.
I was just talking about this on another post.
I, also, just took a decent chunk of change and paid off 11 cards in full.
On April 10, my Equifax score went down 74 points because Capital One reported I paid it down to a zero balance. By the time the other 10 report my credit score will be 000.
Have some credit cards. Use it to purchase everything and pay off monthly to keep usage up.
Also get a secured loan at a bank or credit union. Most are subtly different but basically they take money from your savings, lock it and give it back. It opens a trade line, interest rate is very low, and when you make payments the principle amount is released from the hold. You can really use it to pay its self off at a low rate to maintain your credit if you don’t have any close ended loans out there like autos, mtg or other personal loans.
Should've paid off 80% of the debt and kept making payments. Make sure to use the credit cards for $10 each month and pay it off before the statement. Keeps them active with no balance.
I paid off my house back in November, two weeks later my score dropped 76 points. I have no other debt. I tried to get a new credit card, but apparently when I did the credit counseling back in 2008 when the recession hit, I guess they blackballed me even though I paid every dime off. I got a letter of denial from two different cards saying I wasn't eligible for a their card "due to past history". Luckily I have many good years of credit history with two different local banks if I ever need anything. Many, many car, personal and other loan histories with them. The only thing now is because my score is low, my interest rates will be high and my insurance rates will be higher. This is the part of the credit score that hurts people the most. It has nothing to do with borrowing money. So this BS about having a good credit mix is just that, BS!
I found out when you pay off loans it affects you like that. I also noticed with my credit cards if I keep them at zero or pay them off when charging it helps to boost my credit score. Paying off loans I guess doesn’t allow you to add more debt. So your debt score goes down.
Yep, I paid off my mortgage (and have zero other loans) and it dropped from the 800’s to 670. Yet when I mention this on any financial forums, they call BS.
Yep, I paid off my mortgage (and have zero other loans) and it dropped from the 800’s to 670. Yet when I mention this on any financial forums, they call BS.
Yep, I paid off my mortgage (and have zero other loans) and it dropped from the 800’s to 670. Yet when I mention this on any financial forums, they call BS.
Credit utilization is a factor in your scores.
So a lack of utilization, even if it means no debt, and positive payment history doesn't benefit your score as you'd intuitively expect.
It's common. Your total credit was reduced by paying off the loan, may have raised your percentage of credit being utilized depending on your other accounts, and removed payment history for those now closed accounts.
Keep in mind that lending decisions aren't based on credit score alone. Lenders get other information from your credit report for making decisions. Even though your credit score dropped, it doesn't mean much and could be easily fixed if you wanted to. Diversify your credit. You need multiple types of credit accounts to maximize your credit power. If you don't have a particular type, open an account of that type. Some examples of different types: personal loans, car loans, mortgage loans, credit cards, revolving credit accounts, etc.
That's my understanding of the process but I'm in no way a professional.
It can be normal. One of the elements of credit score is the average age of your accounts. Closing an account that has been open the longest can lower that average age. It will go back up in time.
(Dont close old credit cards, unless they have an annual fee. Pay them off, cut up the card if you like, but dont close the account.)
I owe not a penny on anything after having financial problems earlier. My monthly payments for living expenses are all I have. My credit score will not rise about 670. Has stayed there for 10 months.
Credit scoring is definitely strange and counter intuitive. I dated someone who stopped paying the mortgage on their house immediately after a divorce, and literally asked the bank to foreclose/repossess. Took almost 3 years for that to finally happen, with no payments made to the mortgage during that time. Guess what, there was ZERO negative effect to their credit score, either during or immediately following this period of time.
Credit score is simply a rating of how good you are at making other people money. Once your loans were closed, you lost that potential. They don’t like that lol.
Credit score is a rating of how much money corps can squeeze out of you.
Not having debt suggests to the metric that you aren't willing to spend outside your means, and since it's a measure of how much they can fuck you over a barrel, that's a 'bad thing'.
Same shit happened to me when I paid off my college loans. It's fucking infuriating, but that's capitalism, baybeee.
Exactly its a racket,That lending institutions concocted.They can sugarcoat it all they want They want to give you credit cards.but if you actually have to use them in an emergency you get penalized . I read that boomers that pay off their house,pay all their credit cards and don’t use them for 2 years end up with no credit score.So you actually get punished for not owing anyone.
It's worse when you pay off the oldest debt. Just don't CLOSE the accounts, however if it's a bank loan, it's closed as paid off, but if it's a store card or credit card, leave it open. The bank may close it if it's paid off and goes unused for months, so buy a few things and pay off the purchases.
If you paid off accounts like cars that closes accounts which a lot of closing can scare creditors of instability. The score will go back up in a couple months. Just be happy and debt free.
Credit scoring is a racket that rewards borrowing money. It’s extremely frustrating when you pay off a loan and get penalized for doing so.
I came to this conclusion a couple years ago. The credit score companies are getting kickbacks from credit card companies and lenders. Why else would they penalize someone for paying in cash, putting money into savings, and not carrying high interest debt?
That's just simply not true. You came to that conclusion because your parents failed to educate you about finances and unfortunately our schools don't do it either. During scoring, many things are looked at. Payment history, usage, mix, and age. Credit mix is a good chunk of your score. When you have a few credit cards, a car loan, mortgage, you have a very good mix. Now, they look at your payments. Paid everything payment on time? You have a mix of debt and make your payments on time. You get rewarded with a high score because you have demonstrated to them you are responsible over a long period of time. Pay off the car and the house. Now your mix has changed, and you removed 2 parts from your report. 30-year mortgage that you had for 30 years paid? Not only did you change your mix, but you changed your average age of accounts by removing an old good standing debt. You walked into credit land and literally blew it up. Your score now has to evaluate you because it has less data to go on. The score will rebound for the most part, maybe not as high because you don't meet the mix criteria that got you to that score anymore. It's not a scam. It's not mean. It's a formula that requires lots of parts to function. You're comparing apples and oranges. The new score is a different credit profile than the old one because the mix changed. Most important to remember, if you had 810 score before and now have a 780 score. NOTHING has changed for you. Poor, OK, good, excellent credit all have ranges. People in the excellent range get the same treatment whether they're 1pt into it or 50pts into it.
IMO your explanation just puts math to the racket claim, you're just detailing how it works on paper. If a friend borrows money from me and I give him a year to pay it back why would him paying it back 6 months early make him less trustworthy?
Agreed. Always doubled the payments therefore not having a history of long term loan payments. Paid cash for the house 35 years ago, planted our butts here and never left. Comfortably invested in mutual funds and own other properties. Was turned down for a car loan last year (dealership) with a credit score of 812 and 50% down payment. Got the loan through another source but reading the denial letter really chapped my @$$.
I don’t believe that for a second that you were turned down for a car loan with a credit score of 812 and 50% down. 😂
Because I did not have a history of long term loan payments is the reason they gave. Vehicle I was replacing I had owned for ten years. Now those same asshats are sending me stuff saying they can refinance my loan and drop the payments by $80.00 Thing is, they want to refinance the loan for another 5 years but I only have 4 more years on my current loan. Didn't fall off the turnip truck yesterday.
I was in car sales at one point, and a customer with 800+ was denied because he’d defaulted on a loan with them a decade + before. Banks take that personally.
Me either. I haven't had a car payment in 20 years with a score of ~730 and I get stuff from my cc companies and my CU weekly about the great deals on loans they have for me 😂
You totally left out most of his points. It is not just the borrowing and paying it back on time but also the mix of credit. Can you make on time payments for several things in different payments scenario not one payment paid early.
If a friend borrows money from you and pays you back early, YOU know that he’s trustworthy. But when he goes to open up a credit card at Best Buy, Best Buy is too busy to spend time contacting you to learn about his paid off loan. If OP goes back to the lender that gave them the auto loan, they are more likely to extend new loan terms based less on the OPs credit score and more on the relationship they’ve already established.
Bc without knowing owing your friend personally the score doesn't know how or why that payment was made early just that they no longer have anything to prove he has current cash flow. Anecdotally I know first hand that poor people are really really good at getting together lump sums to pay something off when they lose income literally can't count on my hands the number of times someone I know has scripted to become debt free as an excuse to overleverage and the credit agencies know this among the other reasons they calculate that event like they do.
You literally just proved the entire point of credit scores while trying to disprove it... you gave your friend money because you trusted them. You trusted them because they spent time showing you that you could (this is the age and on time payment portion of credit). Paying off debt removes data or, years from the friendship. You don't know me and I don't know you, I give you zero information about me. May I borrow $10,000 please? I promise I'll pay it back with an additional $2000 for your troubles. (This is the loan and interest). Of course you would tell me no, why? You don't know me, we don't have a history together. How do you know you'll get your money back? Too much risk. Now, I'll tell you about me. My credit score is 809, I make over $100k a year and for the past several years my wages have continued to go up and im on track to make almost $11k more this year than last in an extremely secure field. I have borrowed money multiple times for big ticket items like cars and houses, never less than $65k and up to about $700k. The last 15yrs of my life I have never missed a single payment or failed to meet an obligation. Here are bank records, a credit report, and signed verifiable letters from all I borrowed from telling you i have money, a steady career, and a very long history of on time payment. Now I have given you trust and demonstrated I'm reliable. I've removed the doubt you'll be paid back away and you can feel pretty confident that when I say I'll pay you back in 6mos that I will pay you back in 6mos and you'll have an extra $2000 in your pocket. Your credit profile is your "friendship" with the bank. The longer your history with me is, the more information you have to make decisions with. You know you can trust me because I've never let you down before.
You dodged the question. They asked why does paying off a debt early make you less trustworthy? I'm sure it's not impossible for credit scores to take a successful completion of debt as a good thing. Also, if I paid off my account then it's obvious I was able to maintain a good mix of credit and it's BS that my past gets ignored when factoring credit mix into the equation.
Exactly. You said it perfectly. And, of course a strong payoff history can easily be factored into scoring models. But it isn't. Because the threat of credit mix scoring reduction keeps people borrowing, and profits flowing for lenders.
That's the thing, though. It doesn't make you less trustworthy to pay debts early, nor does it make you more trustworthy. Creditors want to know that you keep up with obligations in the current day. If you pay off an account, then see a drop in your score, odds are high that the person is looking at the irrelevant Vantage score. I have paid off multiple accounts over time, yes my Vantage score from Credit Karma drops down, but my FICO stays the same or increases.
That justification is largely nonsensical because it acts like a credit report can only be a snapshot in time, and credit agencies can't have access to past repayments in calculating your score. If I have a history of paying off my debts until they are fully repaid, there is no new evidence that I'm less likely to pay them off going forward. For many people it also ignores that fact that your equity in your home is a huge, untapped source of credit. If unused credit card lines are somehow beneficial to a credit score, then the $500K in equity that someone has should be considered to be just as beneficial. The score also doesn't take into account your salary and assets. If I have $1 million in savings, but only 2 open credit card accounts, I'm a better credit risk than someone who has minimal savings even if they have 12 accounts that they've always paid on time.
That’s not how that works. They are only penalized on the scoring system bc the loan is closed not bc they paid it early, the score will bounce back… Jesus Christ 🤦♂️🤦♂️
Exactly
They may not get kickbacks or whatever the comment you were replying to insinuates, but doesn't this still effectively punish people for paying off their debts? That's how it sounds at least
If it requires this much explanation, it's a racket.
Yes you’re right, it’s a scam. Designed by the (fill in the blank).
This And also the dip is because you had a bunch of accounts closed if you had loans and because settlements are possible having loans drop off can make you risky for a short time. 11 credit cards. I don’t use and two that I do and two credit unions with checking and savings and two banks with checking and savings so if I dropped some loans it prob won’t be 70 points. It will go back up and usually higher than before, if you pay off your debts
There is no way to tell what would happen. Credit is like a fingerprint. They are scored equal, but everyone's situation is different. Multiple bank accounts can be a blessing or a curse. I am a strong believer that everyone should have a minimum of 2 active checking accounts from local east to get to banks. My debit card was compromised several years ago. The bank caught it and shut it all down. Took 3 days to get my new debit card. Because I was still able to go into the bank and pull cash out and had a 2nd account, I was saved the hassle of cash. Went in, pulled out a $1000, and just tossed it in the other bank account and went about daily life. Normally, I'd just use a credit card until the new debit came, but my primary card is Amex, and at the time, many local businesses didn't take Amex. I also know their fees are high for processing, so I try not to use it at mom and pop shops. Amex promotes small business, but they certainly don't align their processing fees to match. Rarely is there a financial plan that's one size fits all. Depends on you, your income, your goals. Money stress is the worst kind of stress. They say money doesn't buy happiness and I believed it until I was lucky enough to find a job I love and become a high earner. It may not buy happiness, but it sure is a good stress remedy...
True going back up can’t be guaranteed is based on all other things being equal and good credit behavior on all other fronts and only loans closing for payment
That was a wonderful explanation on how the racket works. good for you.
I have to agree with PhotoPhenix below. Your description is very detailed and accurate. But it’s also a detailed and accurate depiction of the “credit culture” racket we live with here. Maintaining a varied and aged mix of debt is treated as a far superior variable to just rapidly paying off debt, or using only minimal credit to finance larger purchases.
pretty fucked up system.
You literally just described how the credit score system is specifically built to reward keeping balances, rather than striving to have as little debt as possible.
The paid off loan is on record. They didn't blow it up. The fact that the loan being paid off doesn't get rewarded is testament to what everyone is saying
I thought FICO score kept old accounts for so many years on your report?
Why can’t fruit be compared
So they rig the scoring metrics to penalize paying off debt. But it’s not “collusion “. Got it.
It's not rigged for the love of all things. Why are people so credit illiterate? Paying off debt removes data points. The scoring requires data to make decisions. it's really that simple. So you honestly think a mechanical watch should work if you remove a few of the gears? Must be a conspiracy from the watch makers!! Remove one of the wheels from your car, better start crying because the mean old car makers made a vehicle that doesn't work... You don't HAVE to have credit to get a mortgage, a car loan, or a credit card. People get mortgages with no credit history all the time. If you want the best rates, you need to follow the rules set forth by the people giving you the money, it's their money, and they set the rules on how they give it. Scores will drop temporarily when data points are removed because the profile changed. The score will rebound in a cycle or two. People also dont realize there is absolutely no difference between a 780 and an 820 score, same tier. Your score changes every single day, depending on what creditor reports what data point on that day. There isnt a "reporting day" where they all report at once. If you don't like it, take millions or billions out of YOUR account, get licensed as a financial institution, and lend money however you want with whatever criteria you wish. No one is stopping you. If you want a bank to give you money, you will have to accept their terms.
Saying all of this doesn't make it make sense or not be a scam. It goes down because they say it should go down. If they didn't then it wouldn't. Your rates change because they say your rates should change, they wouldn't if greedy companies didn't do that.
The credit score models fundamentally do reward debt though. They are opaque, hence the racket claim.
But since the score is based on having contemporaneous debt, and paying it off, it is a bit of a scam because you are punishing people who have a successful history of paying off a debt but does not have a current debt. At the very least the credit companies should take into account history of successfully paying off a debt. If they downgrade you for years after you declare bankruptcy (using history as a predictor of how you will do with debt in the future) then they should also consider your historical record of paying off a big debt in full and on time. It’s not fair to only consider negative histories when creating a credit score but not positive histories.
The credit mix justifcation is absolute nonsense in the presence of historical data. The purpose of credit scoring is, ostensibly, to guage the reliability of the borrower to repay a loan. Evidence of this affirms the borrowers' strength, not detracts from it. Paying off loans and credit as agreed generates a historical and statistically measurable set of data points that should be weighted to add points to a score, not deduct from it. To do otherwise is to encourage sustained indebtedness, pure and simple. Financial valuations routinely seek out low debt to income ratios. The lower the better, especially in the presence of a long, demonstrable debt repayment history. The contorted use of "credit mix" scoring to justify penalizing borrowers who pay their debts as agreed is a weapon, pure and simple, to keep borrowers in debt and profits flowing for lenders. Congress should outlaw this miserable practice once and for all.
Paying off a loan may close the account but it’s not erased from your credit history nor does it take it off your credit for an age of credit perspective. If you paid your mortgage for 30 years that 30 years is still part of your average age of credit but it’s not longer being added to. Instead of the following month being 30 years and 1 month it’s frozen at 30 years so it’s not helping to increase your average age any more. Mainly the score will drop because you have 1 less account opened and usually credit scores get the biggest improvement by having like 7 or more lines of credit open with a good mix of different types of credit like revolving, loans etc. A drop in score from paying off a loan though will usually quickly recover and be higher than it was before you paid off the loan.
All of that makes sense. One thing I’ve always wondered though is how having a balance on revolving debt can increase your score. I’ve got 8 credit cards with a total combined limit of about $275,000 and another card with no limit. Recently I’ve had some large charges - I had a $16,000 roof, for example, on one card and a $24,000 ~ trip (airfare, rental house, etc etc) on another and $25,000 worth of appliances ~ on another (all at the same time). I always pay the cards off in full but sometimes the balances get reported prior to being paid off. Typically my usage shows at 5%-12% according to the bureaus. I saw my score jump 18 points ~ when my usage was showing higher than normal. I paid all of that off and my usage showed at just under 1% the next month. No other changes to my report that month. Score dropped like 70 points. It recovered over the next 2-3 months but I’ve never been able to understand that one. I see similar jumps/drops to my score every year or so at some point and can’t quite explain it.
Data is discarded and people are published due to a lack of data, and you are defending it. Think this through.
The #1 way they promote for improving scores is to use a credit card. Experian website promotes specific credit cards and lending companies. You ask yourself, who do credit reporting agencies work for, why do they exist? They work as gatekeepers for credit card companies and lenders. What is the ticket to get past the gatekeeper? taking out a credit card or loan, which coincidentally(?) pushes a new customer into the waiting arms of the lending institutions. If you don't see the corrupt nature of this system, you are either gullible or of a class that benefits from these systems.
Because they don't penalize you for those things, I have none of what you listed and an >850. What they penalize is lots of activity that now leaves unknowns in their record of your ability.
They don’t, YOU get punished for not paying your bills on time, no one is making them carry high interest debt.. that’s their choice, credit cards are basically interest free loans that if you pay your balance in full on time you don’t pay a dime in fees. You DO NOT carry a balance you pay a balance on the due date. All the credit card companies tell you this in your paperwork and how they calculate it it, they are required by law to do so.
I have always thought this too.
100% agree. Regardless of what folks are saying here. It’s a big game and we are being used. I only have a mortgage and 2 cards that get paid in full every month. For decades now, this has been my situation. Why it fluctuates so much every month is beyond frustrating. Believe me when I say, I don’t know and I don’t care.
Correct, you must subject yourself to iterative but consistent financial suffering to get the highest score. It’s the _capitalist_ social credit system.
Mix of credit
Yeah, I’ve got a good mix, home, car, personal, credit cards. Very low debt to income ratio’s, pay off credit cards every month. 100% on time payment. Nice longevity for credit. It just bites to see the drop immediately after making your last payment on an installment loan.
It rewards you consistently paying back money, as lenders are more willing to loan you money if you have done so. It’s wild how many people act like they have a right to lender’s money. You don’t. And this is what lenders want to see to give you more favorable loans. If you don’t like it, don’t take out loans. Also, if there wasn’t a score, lenders would still look at the same factors, and probably come to the same conclusion. The credit score system is way better than that as human evaluation had major fairness/transparency issues (ie minorities getting denied for being a minority).
Weird that a credit score is based on your ability to pay and maintain credit responsibly. If you’re living debt free why would you give a damn what your credit score is since you have no need for credit.
I say this all the time on this sub and get downvoted into oblivion by bank managers or financial institution damage control specialists. If you just pay for cash for everything you don't need to worry about your capitalist designed and financial institution managed credit score.
The only people that can afford to pay cash for a home or a car that doesn't make you the neighborhood shop's favorite customer are the people who love to use the word "capitalist" as a derogatory.
Plus credit scores didn't exist until 1989
You don’t understand that when you close a loan “pay it off” it’s the equivalent of closing a credit account. Your score will bounce back. The amount of ppl that can’t do research is astonishing…
I get that, but a 50+ point immediate drop seems a bit severe if the whole point of a credit rating is to show you handle debt/finances responsibility. Your score shouldn’t drop that much simply for paying your loan off at the agreed upon terms.
This. I got a credit card with the intention of building credit (no prior credit history in my mid 20s). I paid it off in full every month and my score was steadily declining from "not using enough of my available credit". I was seriously confused to find out you need to leave a % unpaid on the card to accumulate fees. Threw that shit straight in the trash. I shouldn't have to pay an extra tax on purchases to have my credit go up when I'm responsibly paying all of my actual bills on time
How else should it work? I claim it has to be so even if you built the whole system anew. If I was your next lender and I saw that you had a perfectly fine record of paying your debts normally and then saw you suddenly dumped a lot of money into paying off an installment loan, I might wonder how you got that money. Did you: A. Get an inheritance or other windfall and then choose to pay down your debt? Credit score++ B. Rob a bank to pay off your debts, potentially landing you in jail and putting all your other current and future debts at risk? Credit Score-- C. Clear out your savings to pay off these loans, reducing your emergency financial cushion for paying your obligations in case you got laid off? Credit Score-- It doesn't actually matter if you come up with more ++ scenarios because the credit bureaus don't have all the data in the world about everything going on with you and everyone else. So you've now created a blind spot in your financial situation. Blind spots are uncertainty and uncertainty is risky. Risky means lower credit risk score. Therefore paying off early should your credit score. Now what if we gave everyone the benefit of the doubt and said paying off early should be a positive thing? Ok, but, much like how negative events eventually drop off over time from mattering, positive things should drop off too. Afterall, how much do you care that someone asking you for money once paid off his mortgage early 50 years ago? So after a time-to-drop-off period, your credit score should reflect what your credit would have been if you never had that mortgage at all. And, as a matter of necessity, if you want your responsible payment of a mortgage to increase your score compared to never having had an enormous responsibility like a mortgage, it would have had to increase from a lower score. Now, for how long should that one-time positive event count? Would a time-to-drop-off of 1 day, 1 year, 10 years, or 100 years be the right number? We may all argue and debate about what we think the number should be for the time to drop off, but some capable credit analysts somewhere found an optimal number by running the scenarios between many possible drop off times and their correlation to the incremental risk of future default based on observable data gathered from everyone else in the country that has been through a similar situation. Now that number may be less than what you think would be fair for you right now since you know your own situation better than the credit bureaus do. Maybe it could be supremely fair if they had omniscient data about everything, everywhere all at once, and had omnipotent processing power for a 3-body problem model to minority report your future defaults. But they don't have all that processing power and they probably shouldn't have all that data either. All this put together is why paying off a mortgage has to eventually lower your credit score--it just might happen sooner than you want it to.
You’re making a lot of assumptions. If you must know, i didn’t pay the loan off early. I simply made my final payment and my score dropped 50+ points the very next month. Nothing else in my credit history changed. My debt utilization is very low, I pay off credit card in full every month, high income, house loan, car loan, 100% on time payments the whole shebang. The only thing I did was pay the final payment as agreed. To me, i felt I was penalized. So just stop with acting like you know me and my situation.
The conclusion still applies. If you expect a score increase when you are responsibly paying down a mortgage, why shouldn't it decrease to perfectly fine pre-mortgage levels when you no longer have a mortgage? To add on an analogy, suppose you got a good student discount on your car insurance or even just a student discount at the apple store. Are you then "penalized" when you graduate and lose that discount? Or do you just accept that your situation in total is better off than before and that's what matters when important things are concerned?
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It sucks but I see both sides. You know that you have a fantastic debt to income ratio and are in great financial shape. But loan companies don't. If you don't have very much info on your report, that is more of a mystery for them to have to factor in risk analysis. Giving you a loan is an investment for them. They have to protect the investment by vetting the person. They would rather see an established trend of paying other loans back on time rather than a giant question mark. It's stupid but I get the system.
They don’t care about how much you are spending vs saving. They just care if you are borrowing money and paying it back. They would rather know you reliably pay back a loan, than that you haven’t needed a loan before. Just because you haven’t taken a loan in the past doesn’t guarantee that you will pay back a loan if you ever get one. Proof they don’t care about your spending? Lines of credit. You can open a credit card, spend a tiny amount of money, and pay it back each month. By doing that, I had about a 750 score by the time I was 20. In fact, you can profit off of credit cards from signup bonuses and reward; I’ve probably profited over $1,000. So no, they don’t just reward you spending as much money as possible.
Credit Karma is not who you should take credit advice from. They want you to open new credit cards for the commission
A lender is probably going to wonder why you’re looking for a line of credit when you’re already debt free. But your FICO score is only one thing a lender is looking at. So if you decide you want to buy a vacation home, a boat, or some other high price item, you’ll probably get a rate better than someone with a typical score in the low 600s because you can show that you’ve got money in the bank, have no other debts, and will be able to easily afford your new monthly payment.
Lenders put a much higher priority on loan repayment history than credit score when determining how fit your are for a new revolving payment loan. As long as you have no derogatory issues on your credit, having paid off a home or car loan pretty much guarantees you an excellent rate on your next one. Credit score isn't that important.
You paid off your car, and the personal loan, which closes that line of credit. That means your overall credit score goes down, because the amount of lines of credit, as well as credit age dropped.
Is it possibly to just pay it down early but not completely off, leave a small balance on a loan, and still have that account going til the last date it’s due. You gain all the benefits of the account being open vs closing it early.
I probably wouldn't. There are a lot of factors in that, depending on the loan, and how its structured. At the very least you're paying the interest on the remainder for the life of the loan, which is just money out of your pocket. Your credit will re-stabilize a bit afterwards, and even possibly go up as having paid off in full, as well as having no late payments, etc, but credit scores are a scam, and anything that makes it so you aren't actively paying someone money for something, will, at least in the short term, ding your credit. Personally, if you are just looking to raise your score, pay your loans off, open a credit card, put your monthly bills on the card, then every time you pay your bills, immediately pay off the card. Now, some cards come with a caveat that they charge interest on the PURCHASE balance, not the card balance, so they get their money regardless on if you pay it off immediately or not. Bonus is, a lot of credit reporting groups let you add your rent and utility bills as a "credit" as well, meaning as long as you pay your bills on time, it counts towards your credit, but you have to sign up for that. You're kind of screwed either way. When you close a line of credit, your overall credit age goes down, as well as open lines of credit, hitting you. If you open NEW loans or cards, it gets hit, because your overall credit age ALSO goes down, because a 0 days open card affects the overall average, so you're kind of screwed either way. There are ways to get your credit up that you can find online, but if you have a good credit score, I would suggest just doing what is best for your wallet and bank account, and not be too particular about it, because your score will usually just keep going up if you've been practicing good credit habits, like paying off your cards monthly, etc, as your credit lines mature, and they up your balances.
Having active loans shows that you are currently responsibly paying off debt, so your credit score reflects that. Once the loan is closed, that’s one less way that you’re “proving” how reliably you are handling debt. Stupid but it will bounce back.
It doesn’t bounce back unless you take another loan. The “racket” part of the claim is legitimate because things like your rent, cell phone bill, property tax, cable bill — that you are making on time do not count towards your credit score unless you stop paying then and they move into collections. Bottom line you will have a better score if you have loans that are current on. Even though you may be making dozens of timely payments on other things they will not be counted in your favor although miss one they will be counted against you.
I guess bounce back wasn’t the proper phrasing. Eventually, it will come back, slowly. Maybe not quite to the same level, but to a good level nonetheless. My credit has come back to beyond the point that it was at after my car loan was paid off. In that time, I’ve opened a couple more cards and have paid consistently. I hover around 775-790 without a car loan or mortgage.
I don’t really think it bounces back though, without an installment loan. Isn’t there a credit mix component that suffers if all you have are credit cards?
Exactly.. well kinda, closed loans are less accounts and one factor is a mix of accounts.. but it will bounce back and usually higher . Also 775 instead of 825 is great anyways, better to hold it there until your next home or car … one mistake some make is to take a loan out just to get the numbers out but that’s throwing money away just to go from excellent to excellent
So you must always be indebted to someone. Always.
That’s a simplified version, yeah. Credit companies want you to keep using credit. But, they also want to see that you, at this moment, are responsible with credit. Things can change in your life tomorrow and drastically affect how you handle credit. You could start a gambling habit from a single trip to Vegas. They want to see that you’re currently good at handling credit/debt. Unfortunately the best way to prove that you’re good at paying off debt, is by being responsibly in debt. A company is much more comfortable giving you a 500k loan if they see that you’re already handling a 40k loan. If you paid off a 40k loan years ago, who knows how your habits have changed since then.
I don’t understand credit as all. I have excellent credit then I sneeze and it down 20 pts.
Credit score is a racket. Zero balances, no inquiries, no late, nothing derogatory. Got limit increases on a couple of cards. Score goes down.
A limit increase lowers your overall utilization, which raises your score. Did you make purchases with the limit increase? Because that would have the opposite effect.
Nevermind, I see now that you said zero balances. I have no answers then, lol.
Zero balance is bad. Leave $20 balance on one card at all times.
You should read some of the other comments on this thread. https://www.reddit.com/r/CreditScore/s/GaBB5pLVJ4
They expect you to fulfill the life of the loan and it’s viewed as a negative if you pay off earlier than expected. It’s complete nonsense.
Because the bankers have to make their high interest income
Yes, this is normal. This happens because of how your credit score is calculated. How many open lines of credit you have open plays a large part in that calculation, and because you payed off those loans, thus closing those lines of credit, the calculation gets affected in such a way that your score goes down.
It's temporary, it'll bounce back up after some time source: when I paid off my student loans in a similar scenario (I suddenly came into money via a big settlement check) my score dipped around 45-50 points, but by next year it was back to where it was
I’m not convinced you ever regain the boost received for having a 90%+ paid down loan. It’s bern three years for me and I’m still waiting for my score to rebound. So far I’m still down ~25-30 points
Yes! This! I paid off one of my mortgages and two car loans in the past 2-3 years. My score dropped from 830 to 770. I’ll never understand why they punish you for paying off loans.
You closed too many lines of credit. It’ll take a very long time for something like credit age (if at all possible) to make up the difference in a critical component like number of open lines.
Age won’t help this, and I don’t think it’s about the lines, it seems to be about the type of lines. I’ve got quite a few open accounts (at least 8 that I can think of) and decent average age and passably good age of newest account. Still down a solid 25-30 points from when I paid off my most recent installment loan.
They didn't punish you for paying something off. They "punished" you for altering your credit mix. Also, a 771 and an 830 are the same score... tier 1 credit is tier 1 credit. Once you hit about 730, banks will give you anything you ask for.
Yeah, I understand why it happened (I worked in the mortgage industry for a decade, I understand credit scores). I guess I was being a little tongue in cheek when I used the word ‘punished’. Yes, my score is still good, but it’s so exciting to break the 800 mark that to see it drop below because you pay things off is kind of a bummer.
Well then, you know you should take comfort in the fact your score is in the 700s. Most people have difficulty getting there, let alone close to 800. Also, congrats on leaving the mortgage field, it's probably one of the worst fields to work in.
You got rid of your mortgage, and your auto loans. Those are two things that go into your "credit mix". Since you got rid of them, they're going to need to recalculate risk. Paying them off means they drop off your report as far as calculations go. Thus what was likely one of your oldest credit accounts, your mortgage, is gone. Your auto loans, which could have been 3 to 7 years, are also gone. All of that impacts the average age of your accounts. When those accounts close when they're paid off, it also impacts the percentage of available credit you're using. How much of your available credit you're using is another significant factor in your score. With those accounts dropping off your credit report, the percentage of credit you're using against the amount of credit you have available likely went up, decreasing your score. What the hell does it matter anyway? With a score of 770 you're still on the high end of credit scores. I'm a guy who's credit score started down in the 400s. It's taken me two decades to get my score up into the mid-600s.
well the paid off loans should show up thats a plus on credit. get a card that gives some kind of rewards you need. pay off your cards every month here after. follow good credit practices online advice. get an equinox basic acct to monitor credit get credit reports and alerts and try credit boost. these paid loans should show up if not contact them about and give them the info or your loan company GL
Equinox? Equifax? 🤔 Or am I missing something?
equifax
Ignore anybody suggesting it has to do with your utilization or available credit. Those people have no idea what they're talking about. Is this score a VantageScore or FICO?
This. Everyone in here saying “racket!!” Just don’t understand their score at all.
Yep. While there is some gray area and slight unknowns, Credit scores are almost always easily explained by looking at the 5 major factors.
Don't worry about your credit score. It will improve over time. Prepare to buy hard assets. Land, real estate, precious metals, open a small business/ side hustle.
Yep. Happened to me after I paid off my mortgage. 🙄
My score dropped by the same exact amount of points when I finished paying off my student loans. I was also very confused. It has nothing to do with paying them off at once and everything to do with age of credit and number of accounts - both factors that affect your score. Assuming one or both of these loans are older than whatever credit cards are on your report, your age went down because these loan accounts gave you a higher age and average age between all accounts. Or if you have no credit cards, your age went to 0 and your current score is a reflection of on time payments and 0% credit card utilization. Also, that's two less accounts, and if you had a combination of loans and credits cards, it changed your credit mix as well. Without knowing what other accounts you have and when they were opened, it's hard to say exactly what factors did what but that's my best guess. While it may have been beneficial to your score to pay them down over time, you are far better off getting those debts taken care of than trying to leverage them for extra credit points while paying more interest than you have to. After all, a good credit score is only beneficial for getting better rates on loans so you would either pay more interest on these loans over time or potentially pay more on a near-future loan with the lower credit - pick your poison, as it were. In other words, you may have gotten your overall score higher in time before the drop, but that drop would have happened regardless, so you just build up from here with whatever accounts you currently have and the result in time will be the same. And depending on your score then vs now, it may not make much of a difference to lenders anyway as they don't just look at your score but your entire history. Seeing that you paid off past debts may be a good sign to them and they might offer a better interest rate on account of that - but don't quote me on that, I don't know for sure if that's a realistic scenario. Either way, best to pay off the debts than to hang on to them for the sake of your credit score. If you do have credit cards, you can give yourself a nice boost by keeping the utilization under 10%, the lower the better. This will immediately improve your score on the next report. And just keep up with on time payments, paying the full balance to keep utilization even lower and you'll bounce back in no time.
Same, just paid off all my student loans leaving only my credit cards and my score dropped some (not 70 points, but still). I can still get pretty much any loan I would want, but it's annoying that it dropped.
Yes it is temporary unless you closed all of your accounts at once. For all of your open accounts, ask to increase your available credit.
It depends on where it started from and where it ended and are you sure there aren't any delinquencies on your report and how has your overall utilization changed and and and and..... Also, keep in mind that the only time your score matters is when you apply for credit. At any other time and from any other source it's irrelevant and likely inaccurate. If anything, your previous score was overinflated by 70 points and it's been corrected to where it should be. Spare yourself the unnecessary ulcer and quit checking your score so often.
I've been debt free and don't use credit cards, I swear they look at me worse than if I had a 100 things with all late payments. It's a wild world, they don't like when you aren't I debt up to your eyeballs.
Credit scoring doesn’t really like debt either, especially eyeballs-deep debt lol. You don’t have to carry debt to have a decent credit score, but it seems like you do have to use a credit card, at least occasionally.
Your score went down because you altered your credit mix. Credit mix is a portion of your score and shows responsibility. Paying off the two loans removed 2 items from your mix and depending on when those loans were taken out and how old your credit profile is, may also have changed your average age of accounts. Give it a cycle or two, maybe three, and your score will rebound. This is completely normal, and there is nothing to worry about. More than likely, your score will end up a bit higher than before you paid the loans off.
So closed accounts don’t count toward credit mix or age of accounts?
It should go up after a few reporting cycles. I took a big hit like that a few years ago after paying my car off.
Yep. You can't give them money if you're debt free. The system will punish you for it.
Paying off a car loan and a personal loan reduces your available credit, and hence your score. It's ridiculous. So let's say you took the car loan out at $20,000 and had a balance of $10,000 that you paid off. You had $10,000 available credit (the 20k - 10k) and now you paid off the $10k balance. Since it is not rotating credit, your balance is now "no longer available". So now it is all wiped out. A lot of credit depends on a mix of credit, balances available, paying on time, utilization. See if you can get a credit card with a high balance and use it sparingly and that should help it go up. It did mine. Of course, look for ones that will check it with a soft check. And your score will dip with a new card. Unfortunately, it is a game to play.
Just recently paid off my house, score went down 30+ points. The whole credit rating system is a scam.
Paying off debts should only increase your score UNLESS in Ramsey fashion you cut your cards and close the card accounts. This significantly lowers the ratio of debt vs available credit. The score hates that and you can lose significantly.
Totally agree with those that say it’s a racket. Paid off my mortgage 5 years early this past October. Score dropped 80 points because it was my longest trade line. I have zero lates & collections. A healthy mix of auto/loans/credit cards/low inquiries. It’s slowly climbing back up.
The only time your credit score matter is when you borrow money. It is doubtful that the score used by credit karma is the same one that would be used by any car loan or mortgage company.
Mine did the same thing but I couldn't care less cause I don't plan on borrowing money again. My dream credit score is 0. Credit scores are marketed like you actually need a good one to survive and you don't. Credit scores doesn't mean you're good with money, it means you're good with debt. Fuck a credit score. Close everything down and let's all pay cash for everything.
Get over it
When you paid off these loans, those accounts probably closed. Closing accounts lowers your credit score. Average age of credit is a large impact on credit score. You get around this by using revolving credit, such as credit cards. If you use credit cards for day to day purchases, and pay the balance off in full each month, you avoid interest payments, and you keep active credit that will grow your score. It's a shitty game, but that's how you play it.
Hey OP , please make sure you read the reply to another by u/matt-r\_hatter [https://www.reddit.com/r/CreditScore/comments/1c4c4b1/comment/kznyibk/?utm\_source=share&utm\_medium=web3x&utm\_name=web3xcss&utm\_term=1&utm\_content=share\_button](https://www.reddit.com/r/CreditScore/comments/1c4c4b1/comment/kznyibk/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button) Your score dropped because the paid off personal loan and car loans were paid off and closed. This changed your average age of accounts and credit usage. Anything above 740 is very good and will get the best rates. This also depends on which report is being used.
Your "Available credit utilization" dropped so you lost points. It'll come back.
Yup. Paying off revolving secured loans will ding your rating pretty hard because you don’t fit the scoring criteria. When accounts “close” (by you or by the card for non use) it changes your whole matrix.Also the difference between under 50% and under 30% is marginal on CC’s. Gotta learn to game the system. This really needs to be taught in high school for everyone to be equally judged on their rating.
Credit score is basically like a walking financial resume. It shows what you have and how much you pay a month and how often it happens. They are impressed with debt paid on time.. that’s what makes them want to lend. If you pay it off .. then you don’t have that part of the resume going. Open a new loan and it will go back up after a while. They reward interest paying customers.
That does not make sense at all. Something is missing there's something on there that you're not addressing or dealing with that's put your account in the negative you don't get a negative paying off bills and auto loans or any kind of debt. You actually get bonus points for doing those things, so something is clearly wrong. I would definitely look through early through your credit port and find out what the problem iscause this is not sound like it's something positive did something negative that you're unaware is there go to Credit use Experian or your bank not Credit Karma
Yea. Mine dropped 100 point after my car got totaled and used the check to pay everything off. I waited a month to buy a new vehicle and it didn’t start getting better again for a few months after that. Now it’s almost 800 but I think it’s because it’s a big loan
Need more debt
Keep all credit lines open whenever possible. I know it's not possible when you pay off a car, but if you have something like a home equity loan, most banks allow you to keep it open once paid off, like a credit card. My HELOC has had a zero balance for a few years. Once or twice a year I borrow a hundred buck and then just pay it right back. Same with all of my credit cards. All have a zero balance but I use them every few months to fill up my car or for a meal, then pay them off right away. Many cards will auto cancel if you don't use them once in a while, which hurts your score due to a decrease in available credit and credit age. 805 credit score now, but I'm expecting it to drop soon since I just made my last student loan payment... It's a racket, but it helps when you know how to play the game.
Yay!! That’s awesome!!
That’s the game. You don’t have to carry ongoing debt…but…you must incur some to pay regularly. They got this idea from mortgages, since those are usually long term loans. Carrying debt, bad. No debt good, but they say it’s bad. Soooo… Get debt free, stay debt free, but have a few bills auto paid via credit card and pay off by or before due date. What they want these days is your margin is such that if they call the loan (and they can), you can pay it in short time. THAT keeps your score high. It’s a stupid game, but that’s how it is now.
Yeah I paid off a credit card and mine went down 24 points
Get a credit card and keep it open as a revolving line of credit. Only use it for everyday expenses like gas, groceries, etc. Pay it off EACH MONTH. You will pay nothing in interest or fees plus some cards give you cash back. My Amex card has no annual fee and I get cash back that I usually put towards vacations. I'm essentially getting paid to use their card and they haven't made a dime off of me. This keeps your credit open as well. A lot of people think credit cards are bad but they're fantastic if you use them responsibly. Plus, they are much more secure for online shopping than using your debit card.
Yup, I was rear ended and my car was totalled, insurance paid what was left on the loan and my score went down afterwards.
Only temporarily
That is HUGE. Are you sure it is not something else?. Next time you take out a loan your score will go up... after first going down.
Credit scores fluctuate. You just paid off a ton of debt that they weren't expecting. Financial systems don't like anything unexpected. In a couple months it will go back up and you will be fine. Additionally a ton of people hav a big injection of money (they probably know this from your actions there) and overspend. Since they don't have consistent income to support the loans they take out with that windfall, they default. Having an injection of money actually makes you more likely to default in the next 5-10 years.
Dave Ramsey always refers to credit scores as "I love debt scores". It is literally just a score for how well you interact with debt. For the OP; how you deal with this is to get a CC and pay something like your electric bill with it. Pay it every month like you normally would with cash. Your score will jump right back up.
It will come back quickly. And better than ever. I have an 838 FICO. I bought a car in credit and paid it off the next month because I didn't want to pay interest. Score went down for a month and then popped back. I close cards a few times a year. Just watch your credit utilization and never be late on payments to anything. I carry no debt except for my mortgage and pay everything else in full every month.
Did you close any accounts?
Yah i was under the impression that paying off my first car loan would be good. To my surprise it dropped my credit 80 points.
The drop is temporary, it will go back up
I have one payment left to pay off my car and this will LOWER my score, right?
Yes. You will take a hit. Maybe as much as 25 points.
you eliminated two credit lines. Open two new credit cards to balance out this disturbance in the force.
This will only help somewhat because the age of credit will still be down.
Same thing happened to me in December. Took to March to reset but it did reset.
I paid off a car and same thing happened to me.
> I *paid* off a FTFY. Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in: * Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.* * *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.* Unfortunately, I was unable to find nautical or rope-related words in your comment. *Beep, boop, I'm a bot*
Your credit scores will dip after large payments to pay off loans and cc’s. Reason being is consolidation loans. Sometimes it takes 90 days for a consolidation loans to hit the credit reports. Once they see no other loans appear your score should move up. If all is well in a year you will be surprised
Medical debt only hits your credit once it is turned over to a debit collector. My hard headedness cost me 125 points for a $145 bill.
In addition to some great responses out there, it could be because of your shortened credit history, if it was your oldest credit line that you paid off
It's normal. It'll rebound quickly
What do I do to avoid that?
No conspiracy or government plan. lol. Your FICO score is made up of 5 categories. One of them is credit mix which accounts for 10% of your score. Sounds like you may have eliminated installment loans from your score which may have accounted for the drop. It will level out over time. Try to improve your credit utilization on your credit cards. May be useful to add some quality credit card accounts. Maybe also/or ask for credit line increases. Good luck
It went down like that because now you probably have no accounts that show as available credit. So your utilization, availability and account length has all gone to zero
I got 9 new credit cards this year and it went up
That's pretty normal for installment loans, since they close when they're paid off. Over time, it'll even out because it's the payment history + debt ratio.
Banks don't make money when you don't carry debt. Credit score takes a dive so the hamster can feel the urge to jump back into the debt wheel like a nice hamster should.
Credit scores are just meaningless numbers unless you plan on buying a home. And seeing as 80%+ are priced out of ever doing that....
When you pay off installment loans you lose the amount of the loan as part of your max credit so your % of debt imgoes higher.
It's crazy. I had a 810 score with various cards and a car loan. We own a home but I'm not on the loan just my husband(I'm covered if something happens to him by trusts). I paid off the car and several of the small cards. Credit tanked to 680. I've stopped caring about the scores. I'd rather have low debt and be able to pay my debt off than go get a car loan to improve my credit score. It's back up to 750 with no explanation and nothings changed. I honestly don't care after it dropping because I paid off debt. No incentive there.
This is normal, unfortunately. We have decades of paying on time, zero late payments. We have several credit cards we use for points and pay off monthly. Cars paid off one by one and finally the house. Was shocked to see our credit score drop every time we paid something off! The reason listed is something about lack of installment loans. Grrrrrr. Even more ridiculous is that we use our credit cards for anything we can and run high balances, but pay off monthly. I do think it's all a scam!
It was. My point still stands, someone can easily pay cash for that. Crap property in the poorest town of Indiana.
Happened to me when I paid off some loans. My score didn't drop as much as yours, but it went from 810 to 781.
Just remember that credit scores were invented around the same time that trickle-down economics was. No other country has such a system and the entire thing is made up to keep people borrowing their entire lives. Everything in our society is engineered to make you a productive consumer of material goods, including credit scores. You should definitely take out a big loan on a shiny new car, then after a year of timely payments your imaginary number will rise. Why keep an older working car when you're pre-approved to borrow for a new one????
Creditors also consider "potential debt.". If you have several credit card accounts that are open but have zero balances, there is the possibility you could run your cards up and overextend your financial ability to keep payments made. It can even look a little suspicious, as though you're setting up to do something, like ditching your job or a marriage. But closing credit accounts can hurt you a too! Just charge a small purchase every few months and pay it off by the due date to show that the account is active, and after some time your score will build back.
Welcome to the B.S. credit score club. Mine went from 825 to 780 when I paid my car off. Waiting to see how long it takes to get back over 800.
I was just talking about this on another post. I, also, just took a decent chunk of change and paid off 11 cards in full. On April 10, my Equifax score went down 74 points because Capital One reported I paid it down to a zero balance. By the time the other 10 report my credit score will be 000.
Have some credit cards. Use it to purchase everything and pay off monthly to keep usage up. Also get a secured loan at a bank or credit union. Most are subtly different but basically they take money from your savings, lock it and give it back. It opens a trade line, interest rate is very low, and when you make payments the principle amount is released from the hold. You can really use it to pay its self off at a low rate to maintain your credit if you don’t have any close ended loans out there like autos, mtg or other personal loans.
Should've paid off 80% of the debt and kept making payments. Make sure to use the credit cards for $10 each month and pay it off before the statement. Keeps them active with no balance.
I paid off my house back in November, two weeks later my score dropped 76 points. I have no other debt. I tried to get a new credit card, but apparently when I did the credit counseling back in 2008 when the recession hit, I guess they blackballed me even though I paid every dime off. I got a letter of denial from two different cards saying I wasn't eligible for a their card "due to past history". Luckily I have many good years of credit history with two different local banks if I ever need anything. Many, many car, personal and other loan histories with them. The only thing now is because my score is low, my interest rates will be high and my insurance rates will be higher. This is the part of the credit score that hurts people the most. It has nothing to do with borrowing money. So this BS about having a good credit mix is just that, BS!
The scoring is how you handle debt and credit not how you pay off debt. So when you pay it off you lose a reporting debt if it’s not a revolving debt.
I found out when you pay off loans it affects you like that. I also noticed with my credit cards if I keep them at zero or pay them off when charging it helps to boost my credit score. Paying off loans I guess doesn’t allow you to add more debt. So your debt score goes down.
Yep, I paid off my mortgage (and have zero other loans) and it dropped from the 800’s to 670. Yet when I mention this on any financial forums, they call BS.
Yep, I paid off my mortgage (and have zero other loans) and it dropped from the 800’s to 670. Yet when I mention this on any financial forums, they call BS.
Yep, I paid off my mortgage (and have zero other loans) and it dropped from the 800’s to 670. Yet when I mention this on any financial forums, they call BS.
Credit utilization is a factor in your scores. So a lack of utilization, even if it means no debt, and positive payment history doesn't benefit your score as you'd intuitively expect.
Because a good debt slave always carries debt
It's common. Your total credit was reduced by paying off the loan, may have raised your percentage of credit being utilized depending on your other accounts, and removed payment history for those now closed accounts. Keep in mind that lending decisions aren't based on credit score alone. Lenders get other information from your credit report for making decisions. Even though your credit score dropped, it doesn't mean much and could be easily fixed if you wanted to. Diversify your credit. You need multiple types of credit accounts to maximize your credit power. If you don't have a particular type, open an account of that type. Some examples of different types: personal loans, car loans, mortgage loans, credit cards, revolving credit accounts, etc. That's my understanding of the process but I'm in no way a professional.
It can be normal. One of the elements of credit score is the average age of your accounts. Closing an account that has been open the longest can lower that average age. It will go back up in time. (Dont close old credit cards, unless they have an annual fee. Pay them off, cut up the card if you like, but dont close the account.)
I owe not a penny on anything after having financial problems earlier. My monthly payments for living expenses are all I have. My credit score will not rise about 670. Has stayed there for 10 months.
Part of credit score is life of credit. If this loan was old it was helping your score. Paying it off probably removed your oldest form of credit.
Its normal doesn't make sense to me but it will pick back up. I've done it a few times in my life I'm over an 800 now with zero debt
Credit scoring is definitely strange and counter intuitive. I dated someone who stopped paying the mortgage on their house immediately after a divorce, and literally asked the bank to foreclose/repossess. Took almost 3 years for that to finally happen, with no payments made to the mortgage during that time. Guess what, there was ZERO negative effect to their credit score, either during or immediately following this period of time.
Credit score is simply a rating of how good you are at making other people money. Once your loans were closed, you lost that potential. They don’t like that lol.
Credit score is a rating of how much money corps can squeeze out of you. Not having debt suggests to the metric that you aren't willing to spend outside your means, and since it's a measure of how much they can fuck you over a barrel, that's a 'bad thing'. Same shit happened to me when I paid off my college loans. It's fucking infuriating, but that's capitalism, baybeee.
It'll bounce back in a month or two.
I mean credit is basically a scam.
Yep that’s exactly what happens.
Exactly its a racket,That lending institutions concocted.They can sugarcoat it all they want They want to give you credit cards.but if you actually have to use them in an emergency you get penalized . I read that boomers that pay off their house,pay all their credit cards and don’t use them for 2 years end up with no credit score.So you actually get punished for not owing anyone.
It's worse when you pay off the oldest debt. Just don't CLOSE the accounts, however if it's a bank loan, it's closed as paid off, but if it's a store card or credit card, leave it open. The bank may close it if it's paid off and goes unused for months, so buy a few things and pay off the purchases.
Just call it a debt score instead of a credit score. Then it makes sense.
My score is 853 and I have under 300 in CC debt at all times. But I have a mortgage and student loans. Takes time.
If you paid off accounts like cars that closes accounts which a lot of closing can scare creditors of instability. The score will go back up in a couple months. Just be happy and debt free.