Paid off 2 car loans early, score dropped 17 points

[countryrhpdes]

Hello out there in fico land,

I just paid off 2 car loans- 1 about 2 months early and the other 2 1/2 years early. My fico scores at the time ranged fron 781 to 799. I was 1 point away from my goal of 800 and was shocked to see that my scored dropped so significantly. I have many credit cards all in good standing and am utulizing less than 5 % of my available 90,000 credit. Why, in heavans sake would my score drop so much. I get the whole lenght of credit history thing but there is no logical explanation for such a major drop. Other than a few credit inquires and 3 new open accounts in the last 2 years there is nothing that would suggestion such a decline in my fico scores. It appesrs to me that the more debt you have the better your scores? This is simply "STUPID" . 

I have no late payments in the last 10 years and all accounts are in A1 standing. Can someone please explain this whole idiotic process as it just increases my distrust in the 3 major credit companies. 

I  realize that in the long run it is better to pay off debt early and decrease the interest I am paying out ! I am getting to the point where I no longer even care what my credit scores are at the 3 BIG credit companies . I keep my accounts current and up to date and have more than enough credit than I would ever need so I guess I should just let it go and forget about reaching that goal of 800.

Anyone else expierencing similiar issue? Thanks for any comments!

[Anonymous]

You had 2 installment loans close. That's why.

[Appleman]

FICO treats varying types of debt differently. 

If you were to take out a personal loan to pay off some revolving debt your scores would lilkely improve. Installment debt has little impact (within reason) as compared to credit card debt.

Also, your installment loans were about paid off which FICO likes (less utilization on the original loan).

Your scores are in a great spot and there is no reason to distrust FICO scores. They just take the data in your credit report and run them through the formula. It indeed seems counter-intuitive to lose points for paying off an installment loan such as an auto loan but it is a well know fact.

Is there a reason you are needing 800 scores or is it just a personal goal?

[countryrhpdes]

Morning!

I guess the 800 score was just a personal goal. I had filed bankruptcy about 12 years ago do to a renter that trashed my rental property and have had an up hill battle bringing my scores up since then. I did just get a new lease through Chrysler but my Fico's only went up 2 points LOL. Kind of ironic you loose 17 points for paying off a loan but only gain 2 points for taking out a new one.

Thanks for the response!

[Appleman]

You will recapture more points once you hit certain utilization thresholds with the new account. Paid down from 100% to 90% should score an increase with more as the account ages and becomes further paid off.

Congrats on the great scores and I share your frustration is seeing things drop a score when you think they will help.

[Anonymous]

It seems counter intuitive but when you don't use credit your scores go down.  We didn't use any credit for 5 years and our scores were crap.  To maintain good scores you need to use a mix of credit responsibly.  Closing installment accounts will pretty much always cost you some points.  I don't pay cars off early for this reason and also because by the time you get to the last year or two of a car loan you have already paid pretty much all of the interest so there is not much advantage to paying them off early in that situation.