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Posted in Student Loans
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jillybean213

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Why did my credit score drop after paying student loan off in full?
I graduated in 2012 with about $20k of debt split between two different student loans. I have never missed a payment in 6 years. I paid one of the loans off in full about 3 months ago and my credit score has dropped about 60 points which is HUGE for a 24 year old. I have continued to pay my other loan each month.

I have one credit card. It has a $500 limit and I pay in full each month. I have never missed a payment on that either.

I do not have a car/car payment/mortgage. I rent an apartment and have paid on time every month for the past 2 years.

I don't understand why my credit score is dropping.

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Any time you close out an account, your score will drop.  This is because you've lost (i) utilization (ii) credit history and (iii) payment history.  You need to keep a tiny balance on your credit card at all times (1-3% of the limit) and you score will increase.  The more open good accounts you have, the better your score is.  Because you have so little debt, your score is affected more severely by paying off the student loan.  Crazy, but that is how it works.  Remember, these are CREDIT scores, which means you have to have and actively use credit to get a good score.  

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