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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?
@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.
@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.
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.
@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+?
@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.
@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
@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.
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.