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Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!

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Anonymous
Not applicable

Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!

I paid off an auto loan with my auto lender for 12000 dollars.  Now my score is reflecting a 40 point dip.  I thought I was doing the right thing, now I'm sick to my stomach as I've been working so hard on these scores.  Can anyone help me with this or explain how I screwed up by doing this?

Message 1 of 33
32 REPLIES 32
wasCB14
Super Contributor

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!


@Anonymous wrote:

I paid off an auto loan with my auto lender for 12000 dollars.  Now my score is reflecting a 40 point dip.  I thought I was doing the right thing, now I'm sick to my stomach as I've been working so hard on these scores.  Can anyone help me with this or explain how I screwed up by doing this?


This is pretty much inevitable when you pay off an installment loan (at least if you don't have another one). FICO thinks that because the loan in now in the past (barely in the past, I know it seems crazy) it doesn't reflect as strongly on your current borrowing and repayment behavior.

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Message 2 of 33
Anonymous
Not applicable

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!

As mentioned paying off all installment loans will drop your score as it affects you credit mix if you want to add an installment loan to get the points back check out the link below. http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...
Message 3 of 33
SouthJamaica
Mega Contributor

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!


@Anonymous wrote:

I paid off an auto loan with my auto lender for 12000 dollars.  Now my score is reflecting a 40 point dip.  I thought I was doing the right thing, now I'm sick to my stomach as I've been working so hard on these scores.  Can anyone help me with this or explain how I screwed up by doing this?


You are doing the right thing. It's FICO that's screwed up.

 

I'm assuming the car loan was your only outstanding installment line. If that's the case, you lost the points because of their dumb algorithm which thinks a loan that's still open is better than a loan that's paid off, and penalizes you for lack of "credit mix".

 

The good news is that there's an easy way to get the points back without getting yourself into debt all over again:

 

Join Alliant Credit Union, take out a $500+ savings account, take out a $500 share secured loan secured by the savings account with a 48 or 60 month term, decline or cancel autopay, transfer $455 from the savings account towards the loan balance bringing the balance down to $45.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 4 of 33
Anonymous
Not applicable

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!

The link that tel12 gave you will explain the whole theory for why the score drop happened, and it will give you step by step instructions for the Alliant loan.  All you need to do is read the first three posts in that thread.

 

As SouthJ mentioned, we are assuming that you had exactly one open installment loan.  Let us know if that is not the case.

Message 5 of 33
Anonymous
Not applicable

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!


@Anonymous wrote:

I paid off an auto loan with my auto lender for 12000 dollars.  Now my score is reflecting a 40 point dip.  I thought I was doing the right thing, now I'm sick to my stomach as I've been working so hard on these scores.  Can anyone help me with this or explain how I screwed up by doing this?


The SSL technique will get you all of your points back within 30-60 days.  Don't sweat it. 

 

FICO scoring needs to see an open installment loan to give you credit for one.  SJ and I have gone to the mat battling on this topic a few times in the past as we disagree on it.  I personally don't think it's stupid at all and feel it makes complete sense.  I did however at one point share your view, OP, but over time I've come to completely understand why with respect to credit mix that the system works the way it does.  As it's been stated above, though, the fix for this is quick and painless and your score will be right back to where it was, probably higher as the chances of your loan being at 1%-9% of the original balance prior to the $12k payoff is pretty slim unless the loan was originally $120k+?

Message 6 of 33
CreditMagic7
Mega Contributor

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!


@SouthJamaica wrote:

@Anonymous wrote:

I paid off an auto loan with my auto lender for 12000 dollars.  Now my score is reflecting a 40 point dip.  I thought I was doing the right thing, now I'm sick to my stomach as I've been working so hard on these scores.  Can anyone help me with this or explain how I screwed up by doing this?


You are doing the right thing. It's FICO that's screwed up.

 

I'm assuming the car loan was your only outstanding installment line. If that's the case, you lost the points because of their dumb algorithm which thinks a loan that's still open is better than a loan that's paid off, and penalizes you for lack of "credit mix".

 

The good news is that there's an easy way to get the points back without getting yourself into debt all over again:

 

Join Alliant Credit Union, take out a $500+ savings account, take out a $500 share secured loan secured by the savings account with a 48 or 60 month term, decline or cancel autopay, transfer $455 from the savings account towards the loan balance bringing the balance down to $45.


+1

 

You have no idea HOW OFTEN, and it is a lot!! good paying people just like you ask the very same thing when finding out AFTER paying off their SOLE installment loan (whatever it is, auto, personal etc.) that their FICO Score just took a smack.

 

As SJ mentioned above, it might not make sense to us, but THAT IS THE FICO SCORE RULES.

 

Just follow the good advice offered, spring for that SSL, and pay it down IMMEDIATEY as very well described and you WILL recover a fair amount of FICO points again.

 

FICO makes those rules and we're stuck with them AS-IS. 

Message 7 of 33
NRB525
Super Contributor

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!


@CreditMagic7 wrote:

@SouthJamaica wrote:

@Anonymous wrote:

I paid off an auto loan with my auto lender for 12000 dollars.  Now my score is reflecting a 40 point dip.  I thought I was doing the right thing, now I'm sick to my stomach as I've been working so hard on these scores.  Can anyone help me with this or explain how I screwed up by doing this?


 


+1

 

You have no idea HOW OFTEN, and it is a lot!! good paying people just like you ask the very same thing when finding out AFTER paying off their SOLE installment loan (whatever it is, auto, personal etc.) that their FICO Score just took a smack.

 

 


Yeah, there should be a sticky thread at the top of this forum titled "PAID OFF MY CARDS / CAR and MY SCORE DROPPED!" (yes, in all caps) then just leave that open for people to read and add to. Of course, that would drop the number of threads in the Understanding FICO Forum by about a third Smiley Tongue

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
March 2021 $33k on $312k EQ 796 TU 798 EX 801
May 2021 Paid all Installments and Mortgages, one new Mortgage EQ 761 TY 774 EX 777
April 2022 EQ=811 TU=807 EX=805 - TU VS 3.0 765
Message 8 of 33
Anonymous
Not applicable

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!


@CreditMagic7 wrote:

 

Just follow the good advice offered, spring for that SSL, and pay it down IMMEDIATEY as very well described and you WILL recover a fair amount of FICO points again.

 

 


I will make an amendment to this statement.  The OP would recover all of the FICO points he lost from paying off his auto loan, assuming he was at 9% or less of the original auto loan balance.  If his balance was higher than 9% of the original balance at the time he paid it off, there's actually a chance he could recover all of the FICO points he lost and even a few more.

Message 9 of 33
happypill
Valued Contributor

Re: Paid off my auto loan of 12000 and it dropped my Fico score 40 points? HELP!!

To the FICO experts out there, is a Federal student loan considered an installment loan, or is it a separate category?  What about a mortgage or private student loan?

 

Thanks, and best of luck to the OP.  40 points is a lot, but hopefully it's just temporary.

Message 10 of 33
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