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New Member
HeatherGarcia09
Posts: 6
Registered: ‎03-20-2013
0

Car Loan pay off caused fico score to go down 18 points?

I refinanced my car last month for have the APR that I was being charged.  When the new loan came through, my FICO went down 2 points.  When the old loan came up as paid off with 0 balance my FICO went down 18 more points with the explination that my balance was too high.  Can anyone tell me what the heck is going on?  

 

Thanks,

Heather

New Contributor
helaurin
Posts: 54
Registered: ‎02-03-2008
0

Re: Car Loan pay off caused fico score to go down 18 points?

Heather,

 

Chances are that the following occured, causing your FICO score to drop;

 

1.  The refinance is counting as a new loan, decreasing the average age of your accounts - which would affect your FICO score negatively.

2.  Let's say you had already paid off half of your old auto loan, so the utilization rate would be 50% of the original credit line.  With your new refinanced loan, odds are that they set the credit line at the amount that you borrowed - so your credit utilization rate for this new account is 100%.  That could also affect your FICO score negatively.

3.  If they did a hard credit pull (likely), and if you have any other hard credit pulls on your report, the number of hard inquiries could also bring your score down.

 

As you continue to pay the new loan, the negative effects from the new account should diminish.

 

Hope this info helps.  :smileyhappy:


Starting Score: 2014 775
Current Score: 822
Goal Score: 840


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Kenny
Posts: 6,344
Registered: ‎01-15-2009
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Re: Car Loan pay off caused fico score to go down 18 points?

I agree with the previous post, but I also would like to add that when I had an auto loan report as paid in full finally.. my score went down, as well. There were no other variables at that time that would have made it go down. It was interesting & weird.
Starting Score: EQ04: 748 (1/31/14) - TU08: 755 (1/06/14)
Current Score:EX08:778(12/04) - EQ04:770(10/31) - EQ08:791(12/05) - TU08:798(12/05)
Goal Score: 800+
Established Member
hatetheordinary
Posts: 16
Registered: ‎05-19-2014
0

Re: Car Loan pay off caused fico score to go down 18 points?

Its all part of the scam that makes up the finance industry. I have two credit cards and have been building my credit with them for the past 6 months. I was making incremental payments in both of them and the balance eventually went to 0 for both. I let the balances unfortunately stay at 0 to where it reported and consequentially it made my scores on average drop 17-20 points. My EQ went from 692 to 677. Revolving or should I say PERPETUAL lines [aka DEBT] of credit are the key to obtaining a decent credit score so you can get into more debt so you can get a better credit score so you can get more debt so you can.....You get the point.

 

The algorithms and parameters for grading credit and approving loans have hardly anything to do with an honor system in a sense to where fulfilling a contract or loan is acknowledged as complete. As a matter of fact what we clearly see are scores from people being negatively impacted by completing their loan obligations. Its kind of a catch 22.. Dont pay and default the loan and watch your score drop, pay off the loan and watch it do the same. Stay in debt and watch it go sky high. Paradoxically [ but maybe not] its the people I know who are essentially insolvent and up to their ears in debt who can get approved for any number of loans and not the responsible people who will actually utilize their loans efficiently and sparingly.

New Member
HeatherGarcia09
Posts: 6
Registered: ‎03-20-2013
0

Re: Car Loan pay off caused fico score to go down 18 points?

Thank you for the information.

New Member
HeatherGarcia09
Posts: 6
Registered: ‎03-20-2013
0

Re: Car Loan pay off caused fico score to go down 18 points?

Seems about right.  this system is all about keeping your score down so you can pay multi millon dollar companies higher interest our of your  tiny pay check.

Valued Contributor
Remember0
Posts: 1,288
Registered: ‎02-12-2014
0

Re: Car Loan pay off caused fico score to go down 18 points?

Hey Guys, I understand the frustration, but I just want to provide some perspective. I do not currently work for one, but I have in the past worked for a very large financial institution in a business-side role.

 

The system isn't really rigged as to keep your score down in order to make you pay more interest. Let me provide you with the simplest reason why: it's hard to argue against the fact that personal banking is an exremely competitive market. There are literally thousands of financial institutions, all wanting the same piece of the pie. If any one of these organizations realized that low credit scores are meaningless or have less meaning than previously thought in terms of predicting default, trust me, they will compete and lower the interest rate they offer to the segment of the population they consider less of a risk.

 

I don't know if that was clear enough. In essence, all I mean to say is that financial institutions compete in a nearly perfectly competitive market. They each try to seek any edge they can get in order to profit over each other. THE biggest edge you can have is to be able to model risk better than the next guy and give consumers a lower rate than the next guy. And trust me they constantly look at ways to model risk better & lower rates. So I think it's incorrect to assume that the "system" is fundamentally rigged against you. Sure it might not be perfect (I'm the last one to say this). But to accuse firms (multi billion by the way, not million haha :smileywink: ) of rigging the system/purposefully keeping scores down seems to me like it's very farfetched.

As I am very busy with work these days, I am participating in the forums less than I would like to. Please feel free to email me directly remembermyfico //at// gmail /dot/ com if you would like me to respond to a specific question you have.
Senior Contributor
BungalowMo
Posts: 4,243
Registered: ‎05-01-2008
0

Re: Car Loan pay off caused fico score to go down 18 points?


HeatherGarcia09 wrote:

Seems about right.  this system is all about keeping your score down so you can pay multi millon dollar companies higher interest our of your  tiny pay check.


Heather...are you trying to get auto financing right now?  Do you know what your credit reports look like??

Maybe what you might need to do is get looking a little better on paper before trying for a loan.  That being said, that is what this site is all about.  Education.  Equal sharing of information so that everyone can get the best credit you can possibly get.

 

Best thing of all here...no one judges the spot you're in.  I came here years ago.  I had just had a bunch of baddies drop off my reports, but I actually had 13 baddies & 2 good on my Eq. report.  It really doesn't get much worse than that...

 

Been there & have the battle wounds to prove it.



Starting Score: 07/2011 TU 732 - EQ 717 - EX 702
Current Score: 06/2014 TU 739 - EQ '08 709 - EX 721
Goal Score: 850

Bury me in the garden...last app 06.18.14

New Member
HeatherGarcia09
Posts: 6
Registered: ‎03-20-2013
0

Re: Car Loan pay off caused fico score to go down 18 points?

I am not looking for an auto loan.  I just refinanced my car because my credit score improved enough to optain a better interest rate.  I look at my FICO score daily and pull my report every other month or so.  

 

While I was on my honeymoon CITI Bank hit us with what is now an illegal practice.  My Husband had this CITI Bank credit card for 10 years; he was never late for a payment and never missed a payment. When we left for our honeymoon we forgot to put our payment in the mail and left it on the table.  When we returned CITI Bank had more than doubled the interest rate on the card.  My Husband called them and they would not do a thing for him.  The monthly minimum payments were the amount of over one paycheck.    We could have declared bankruptcy but we didn’t.  We struggled for five years to pay off the car and still try to meet our basic needs.  Other things got behind so our credit tanked!  We have now been working on improving our credit for over 3 years.  I finally got to the score in which we could get a mortgage and then we refinanced the car and we are below marriageable level now.  It really makes me mad that our credit improved, I received a better rate, my car payment is now lower and now I am punished for having a better score to begin with.  I am also upset at the credit scoring system because it is not taken into consideration that we rent an apartment that is over $1,100 a month and we have never missed or been late for a payment.  This comes into play as the mortgage range we are looking at would be $300 less a month then our rent.  We should have banks lining up to give us a loan as we did not just declare bankruptcy, we wanted to honor our debts and we can easily make the mortgage payments required for the price rage we are looking at.  So yes, I am a bit bitter and tired but I do look at my information and I honor my debts.  This is not considered in the credit score game.

New Member
FLbiker77
Posts: 4
Registered: ‎05-28-2014
0

Re: Car Loan pay off caused fico score to go down 18 points?

I can understand how you feel.  And bravo for sticking in and paying your bills!!  My husband and I had no bills, paid cash for our car and were renting.  We we turned down for a mtg in 2010.  Were told we had no credit.  So we got a couple of cc's and got our scores up to around 680 and got approved to build a new home.  We were still told we needed more credit and to open more cc's.  We did.  Closed on our home 10/27/2011.  Paying 2k in mtg pymts, financed a car for 345 a month.  Paying on 10 cc's with low limits for 2 1/2 yrs now.  Only 2 cc/s are over 8yrs old.  Have a charge-off on our credit from 2009 for 400 and is paid and NOT ours.(just tired of fighting it).  Our scores have remained at 628 for 2 yrs now.  While we watch our friends 2 yrs out of bk or foreclosure buy homes, etc.  And their credit scores are great!  I know just what you're saying.  And it is not an equal playign field.  It does seem like the ones with all of the debt do get everything they want and have the highest scores.  Keep trying.  Don't let anything stop you.  I never gave up!!!  Good luck  :smileywink:


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