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Question By
bobl61

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0 People Helped
My credit score was on a steady increase. I paid off my car loan, and now it dropped to 690?
I'm totally baffled here. I have not incurred any new debts. I have no clue as to why my score dropped (dramatically).

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82 People Helped

When you pay off a loan

Helpful to 33 out of 34 people

Depending on what else you have going on with your debts, completely paying off your installment loan may help your score or drop it a bit. 

So my understanding of it, which obviously is far from complete, is that there are multiple different FICO scores even across each bureau, and what a bank might use to make a dertermination isn't necessarily the same as what Creditkarma's score shows. Basically the things you want for a good score are a long history of decreasing balances on a varied portfolio of debts. 

When you are making regular, on time payments on an installment loan, assuming you don't open up any new lines of credit, each month that goes by increases the average age of all your accounts which helps your score. At the same time, as you pay it off the remaining balance compared to the initial balance is going gets smaller and smaller, which is basically improving your credit utilization (think like credit cards). If you have other lines of credit like credit cards, student loans, mortgage etc., then just simply having the installment loan will increase the variety of credit you have open, which will also help your score.

So you have this installment loan, say a car loan, and at first the account is new so your average credit age is a little lower, the balance on the loan is high, and you probably have at least one recent credit inquiry (to get the loan in the first place), and as time goes by all that changes and things get good. Right before the loan is paid off it's great. Once you pay it off though, you lose th benefit from the variety of credit lines, since your out an installment loan, so the score drops a bit. Depending on the scoring model (which can vary based on the company showing you the score, like CK), once the loan is paid off it might no longer be included in the average age of accounts, so that'll make your score drop too.

So if the only other line of credit you have on your report is, say, one credit card you recently opened, then it's probably going to be a big drop to your score. But if you've got other lines that are older, especially multiple ones, it could help your score. 

Now this is my unsolicited advice, but to play the credit system right you can be well off with a few credit cards. Get one without an annual fee, and assign some recurring monthly bill to it, like Netflix, or dollarshaveclub, whatever you have going. Link it to your checking account and set up autopay, so you don't have to worry about it, assuming you got funds in your checking. There are some with no annual fees and give cashback, or hotel points, things like that, and, again, as long as you get that card balance paid in full you won't pay any interest, and be constantly raising your score (and lessening the blow of the credit ding by paying off your installment loan fully)

1 Contribution
150 People Helped

Dropped 80 points!

Helpful to 150 out of 163 people

I was just horrified to see that my credit score had just dropped from mid 700s down to mid 600s because I padi off my student loans.  I sold a vehicle, and used that money to become debt free, and now my credit score drops 80 points!  I know why, it is because the average age of my open accounts is now less than one year (credit card).  I've never missed a single payment, had a vehicle loan, student loans, and a credit card previously.  

So the only way to have a good credit score is to go the "American Way" and stay in debt all the time....just like all the big banks and corporations want you to do.  Just shows how interconnected everything really is, and how much of a joke it all is.  

Reply by
alan1212

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78 People Helped
Helpful to 78 out of 82 people

When I read this I couldn't help but clap my hands and say yes! You're so right about the "American Way" of getting into debt. When you're not in debt the banks can't make money off of you but when you're in debt and have a hard time paying it. Not on do the banks come after you but so does the government. Makes no sense. It's better to be debt free and have a ****ty credit score than to be paying bills for the rest of your life and have a good credit score. Being debt free is the ultimate way of sticking it to the man :)

Top Contributor
12 Contributions
67 People Helped
Helpful to 63 out of 70 people

Right on the money. I took out a 72 month loan on a new car. Just paid it off in 28 months.

Come to check my score expecting a 10-15 point rise or any rise for that matter.

Surprise surprise....a DROP in my credit score. This is complete BS.

Reply by
ColoradoRoy

9 Contributions
66 People Helped
Helpful to 51 out of 52 people

This is hilarious. but not really though. It's a conspiracy. when you pay off a loan, you are now in a position to take on new debt, therefore your score drops, so the banks can justify a higher interest rate on your next loan app. The whole system and corporate greed disgust me.

Reply by
MaryKui

3 Contributions
6 People Helped
Helpful to 0 out of 1 people

This also unto me my score dropped 46 points I paid off a car loan perfect the late payments for two and a half years prior to that I have another car payment paid off no late payments a total of $30,000 on Time payments for 5 years I've and a half years and I credit score drops 46 points. I was horrified and disgusted the system is a scam you can't get do anything good enough to raise your score I shouldn't have to be in debt struggling keep my score up and what good did it to me it didn't go that well I didn't make much of a difference to choke a complete joke the system is

Reply by
azralynn

1 Contribution
1 Person Helped

I know your pain. I paid off personal loan and my score went down 25points I was and am still mad about it. I took that loan to improve my score not to pay 30+ in apr for hell of it. 

Reply by
jeancrawford53

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0 People Helped

Enter Your Replythat just happened to me paying off an install wNt loan.  so mad

1 Contribution
34 People Helped

I agree whole heartedly

Helpful to 34 out of 38 people

I bought my mom a vehicle to help build my credit score so i can buy myself a car much easier since im only 23. I recently paid off the rest of the loan, which was about 5k. I was thinking the FICO score would go up because it sees someone is actually responsible, better yet even paid his debt earlier. I WAS DEAD WRONG. My score didnt go down as much as others but it went down 6 points. I never opened a credit line and im never going to. I think its bulls**t to be a responsible adult, but get penalized for something you would naturally think would be a positive outcome. The system is truly rigged to keep Americans in debt and help whoever is running the banks, and i mean really running the banks, Roths, to keep a steady income which in turn f**ks every good person out there making a decent living. Utter crap to be honest. Ill take my credit drop and still go buy my car. Im just ****ed and thought I'd rant here since im nearly 100% positive others have a similar story to tell.

Reply by
cdennii1021

1 Contribution
9 People Helped
Helpful to 9 out of 10 people

I just experienced this same issue. Paid my loan off WITH A BANK MIGHT I ADD, which is supposed to help your credit tremendously showing you have a paid off loan through a bank. So did it help? Nope! Dropped my score 7 points and I still am having a hard time understanding why. Thought I was doing good by lowering my debt amount, but guess we're just supposed to stay in debt forever.

Reply by
Alexandra1973

2 Contributions
0 People Helped

LOL  I just used my tax return to pay off an installment loan.  I looked at paying off the loan vs paying off a few credit cards and I save more money per month paying off the loan.  Which means I can use the money I'm saving to pay off credit cards...or better yet use the money I save for gas and necessities each month and avoid using credit cards.  So even if my credit score dips a little, getting my credit card balances down should help.

1 Contribution
13 People Helped

Helpful to 13 out of 14 people

I experienced the same. I was in 800 elite clubs until I paid off my loans. My credit score dropped to 760 level when I paid my loan. I have an extremely low debt to income ratio (virtually no debt) my credit score is in mid 700. 

I was living an "American Way" until I spoke to my Asian neighbor who said that they don't have any debt. They have two professional grown-up children who are debt free as well. The parents paid for the kids' education and the kids lived with the parents until they accumulated the cash to buy their first condominium and the car. I am enjoying the life of debt free. Keep all you earn sans taxes. It is peace of mind

1 Contribution
19 People Helped

Yeah, THANKS

Helpful to 19 out of 20 people

Just paid off my car.. was on the verge of having good credit, buying a house and getting myself together and TA-DA!!! My credit score dropped to borderline very poor. This entire system is built on debt and therefore built to screw over regular hard working people. Totally deflated me .

3 Contributions
9 People Helped

Loan Payoff PAIN

Helpful to 9 out of 9 people

I recently encountered same situation with my credit; I paid off a 4 year car loan in just over 3 years and my score dropped right around 40 points.  Since I’m only 27 I don’t have a very lengthy credit history (I didn’t realize closing credit cards hurt your score and accidentally did this with the only one I had at 21 because I didn’t use it) so paying off the loan hit me especially hard.  I can understand that paying off a loan closes the account but why does that mean all the on time payments I made on the account over the life of the loan no longer matter?? It was still an account that I had for multiple years that was always in good standing.  I should still get credit for the years I paid on it, on time.  It’s not fair that essentially everything disappears and it becomes pretty much irrelevant once it’s paid off.  If I missed a payment on the loan would that just be erased and become irrelevant once the loan is closed?  I really don’t know how this works but I doubt it.  If one thing can hang out there and affect my score after the account is closed, why can’t all of it? Especially the good things that would actually help me?! Regardless of the current account “status”, I managed that account well and it should show that, not just drop off and disappear.  Maybe a cumulative length of credit history in addition to just the average would be a nice addition to help with some of the frustration people feel when they’re essentially penalized for being responsible. This whole thing is super discouraging. 

4 Contributions
3 People Helped

One day the world will understand

Helpful to 3 out of 3 people

Your credit score is not a measure of anyone's willingness or ability to pay.  It is a measure of your profitability to banks.  Therefore any use of credit scores and reports outside of direct lending should be outlawed.  This includes determination of insurance rates and insurability, employment and hiring.  Until it credit ratings can be used as a relaible method of determining someone's level of responsibililty this should be a major political issue.  The most responsible people do not have "exceptional" credit because they do not carry debt.

1 Contribution
12 People Helped

Benefit to early payoff

Helpful to 12 out of 12 people

While yes, your credit score will likely drop due to paying off early, the impact may vary based on how old the loan is compared to your other credit lines (if the loan is newer than your other credit lines then you may get a small bump in credit score as the average age of credit will increase). Also, if you have other installment loans and have more than enough total credit lines, the negative impact  of paying off your loan is significantly lessened.

For me, I just payed off my car loan early because I am looking to refinance my mortgage soon. The benefit of a lower total monthly debt far outweighs the negative of a lower credit score in my situation.

1 Contribution
7 People Helped

It's not age of credit history

Helpful to 7 out of 7 people

I have done the math for my own situation and I'm now inclined to think it has little to do with a decreasing age of credit history, as paying off my car loan (only difference in my credit activity from 1 week to the next) resulted in an 11 point drop.  My oldest credit card is 28 years, and the car loan only 6.  Closing out the loan actually raised my average age of credit.  Therefore, if the reason for the drop is anything logical it must be extremely more weighted to the changing mix of installment vs. revolving credit.  Mine had been outgoing (minimum payments) 918 installment vs. 305 revolving, which then became 340 installment vs. 305 revolving.  At least it's good to know what to expect when I get 2 other loans paid off in the near future and it becomes 0 installment vs. 305 revolving (or whatever that is at the time).  This has been educational.

1 Contribution
1 Person Helped

credit credit

Helpful to 1 out of 1 people

max out on the cards. go deliquent and dont worry about the delinquency. save up though! and contribute max to your 401k. the only thing your missing out on is the card perks. you’ll have cash to pay for other things cause your not paying your credit card bills. in 7year your credit report will be clean despite all the bad remakes. the system is totally flawed to on time payers.

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