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Paying off my car loan ruined my credit. Score dropped 70+ points.

Regular Contributor

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.


CreditGuy03 wrote:

HiLine wrote:

CreditGuy03 wrote:

The more debt credit accounts you have manage well the more your score goes up. Which is asinine and backwards logic.  makes perfect sense because your credit score reflects how well you manage credit.


IFYP


If it only were this simple. Paying off a loan drops your score. Which is the whole reason for this thread in the first place.

 

That means you paid off a debt. Paying off a debt does not work in your favor in the eyes of credit scores. 

Why the need to keep 1 card under 9% util and others at zero? Why even have to manipulate the system like that just to have better credit? 

 

Why is it that when paying off charge offs or collections nothing happens to your score when logic will tell you that these accounts should be factored against at a 50% less rate. The whole entire system is a sham. Even down to having to PAY for information about our personal lives.


This isn't really @HiLine or @CreditGuy03 it's just a general reply to several things said in this thread.

 

First off, I feel everyone's pains having ridden the FICO roller coaster several times and yes this system is certainly not for our benefit and often makes little or no sense.

 

The purpose of my post is to point out that a credit score is not exactly a measure of how good of a credit consumer you are or how well you manage credit although that's close. Each system has a specific "model type" which for most of the FICO scores we deal with is a measure of how likely the system thinks you are to have a 90+ day deliquency on any existing account within the next 24 months.

 

My guess is that when you pay off a loan, even though it stays on your report and is considered in your credit mix, it's no longer a loan you can be delinquent on so all of the other items on your report take on a bigger role in your score because there is one less TL being considered in parts of the formula. That would explain why people with thick files are less affected by this sort of thing than people with thinner files. Also keep in mind that these models don't just use your data they also use "characteristics" which are assigned to you based on the behavior of the group of people they've placed you in (often called scorecards, buckets, and or bins). This means you can gain or lose points just because of how your "peers" are expected to behave.

 

It's monumentally unfair that we're not being judged solely on our own merits but that's how statistics and the FICO system work.

Message 41 of 90
New Member

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.

Mine has gone back up after securing the new loan along with utilizing credit and paying it off every month.
It's totally not a fair system. Previously I paid all of my bills on time, but there was something funky going on with my student loans. I never did figure it out ;-\
Message 42 of 90
Regular Contributor

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.

I watch my scores daily, when my 18k car loan reports paid ill report the results. Mind you i have a thick file and currently 2 mortages and 2 car loans. One car loan will report paid soon and the mortage shortly after.



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Current Score: 744 Smiley Happy
Goal Score: 800


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Message 43 of 90
Blogger

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.


Ubuntu wrote:

The purpose of my post is to point out that a credit score is not exactly a measure of how good of a credit consumer you are or how well you manage credit although that's close. Each system has a specific "model type" which for most of the FICO scores we deal with is a measure of how likely the system thinks you are to have a 90+ day deliquency on any existing account within the next 24 months.


I feel that from a bank's point of view, the probability of having a delinquency on an existing account is the same thing when how well the person manages credit. In the end, what banks fear about debtors is that they may default on their debt, the probability of which is what FICO scores measure.


Ubuntu wrote:

My guess is that when you pay off a loan, even though it stays on your report and is considered in your credit mix, it's no longer a loan you can be delinquent on so all of the other items on your report take on a bigger role in your score because there is one less TL being considered in parts of the formula. That would explain why people with thick files are less affected by this sort of thing than people with thinner files. Also keep in mind that these models don't just use your data they also use "characteristics" which are assigned to you based on the behavior of the group of people they've placed you in (often called scorecards, buckets, and or bins). This means you can gain or lose points just because of how your "peers" are expected to behave.


 When you pay off your auto loan, it is no longer being paid, and it is no longer debt. Your credit history consists of your past and present credit management behaviors. Closing a loan means one fewer credit account that you are actively managing. When someone opened an auto loan and was paying for it, this good behavior gave his score a significant boost. When the auto loan is taken away, so is a portion of the score boost. If the guy did not complain about a score boost when the loan was active, he should not complain about the boost fading away when the loan becomes inactive, either.

 

And as always, having a thick file helps.

Message 44 of 90
New Visitor

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.

I can agree to a credit score dropping 70+ when paying off a loan. I just payed off a 12k dollar loan a couple of years early, due to high interest rate and from 686 i went down to 681 from 1 day to another literally. I paid off all of my debt, previosly and this did mostly nothing for my score only to now have IRS harrasing due to it being added as income.. Sometimes paying off debt will actually hurt you, so its best to keep the course and take your time to pay..

 

My opinion based upon fact.

Message 45 of 90
New Contributor

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.

If you want to blame anyone for FICO score not making sense  then blame the politicians. They mandated that no information on assets nor income should be contained in the credit file and thus credit score. Thus while sovereign nations and companies are rated based on assets and liabilities and income and expenses, American consumers are rated based on their past history of paying debt. This system fails during a recession when a person who has managed debt well in the past loses their job or is faced with a sudden large Bill. Not all scoring systems use FICO's method of penalizing non existence of a "mix of credit type's. Under FICO's system a person who has paid off the mortgage and buys a car on cash will be penalized compared to some one who has both a car loan and a mortgage simply because he is 'managing' his or her debt 'well'.  But this accounts only for 10% score. As one belonging to this group I knowvisit will never reach 850 score. But at 805 FICO score, I have not had denials for a credit card. I just got a Sams Master card with a $35k limit. I think credit scores are starting points for credit approvals, but the limits draw upon information that is not part of the credit file.

UNFCU Visa Azure $45k, Sams Master Card $35k, Amex Costco $25k, Fidelity Visa $25k, Chase Freedom $18k, Cap 1 Mastercard $12.5k, Kohls $1.5k, Cancelled on my own BA $25 (it was Schwab card earlier) and Chase Saffire $22k. Also have 2 business cards with Chase and 1 Amex Open. AU Target $2500.
Scores: 11/14 EX 801; 11/14 TU FICO 805; 11/14 Van 823
Message 46 of 90
Valued Contributor

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.


upnorth wrote:

 

I just got a Sams Master card with a $35k limit. I think credit scores are starting points for credit approvals, but the limits draw upon information that is not part of the credit file.


 

Of course credit limits also aren’t used directly to calculate your FICO score.

Have never set foot, by the way, in Sam’s Club, Walmart’s warehouse chain.

Message 47 of 90
New Contributor

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.

I am a Costo member but  I took up Sams Club membership because it is very close to my home and filing gas there would be more convenient. I prefer shopping at Costco. But Sams gives a benefit that Costco does not give. The first 3 hours is just for business members and no crowds and no waiting line, not to mention free coffee and donuts. So having Sams Club membership is handy for quick shopping. Though Costco service and upper end product range is unsurpassable. 

UNFCU Visa Azure $45k, Sams Master Card $35k, Amex Costco $25k, Fidelity Visa $25k, Chase Freedom $18k, Cap 1 Mastercard $12.5k, Kohls $1.5k, Cancelled on my own BA $25 (it was Schwab card earlier) and Chase Saffire $22k. Also have 2 business cards with Chase and 1 Amex Open. AU Target $2500.
Scores: 11/14 EX 801; 11/14 TU FICO 805; 11/14 Van 823
Message 48 of 90
New Member

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.

MINE JUST DROPPED 37 POINTS FROM 845 TO 808 FOR SAME REASON

 

I had been averaging 800 to 820 give or take on all three for some time. Call it 808 as an average, with EXP at least.

 

GIven all that time (trailing couple of years) I had a car lease with an original balance of $12000 which I prepaid at

inception so it always showed balance due of $0.

 

Lease ended Jan 31.  I kept car for two months while getting new one. Leasing company charged me $380 per month

each month x2 but didn't get around to billing it until early April when I had already turned the car in and got new one

with similar prepaid lease.

 

As of early April the leasing company started reporting that my old (just paid off) lease had a  balance of $760 representing

the two months I had kept the car. Instantly my 3 bueaus popped up, EXP going from 810 to 848, the others similar.

 

Today I got notice that my old lease now showed paid off to $0. That dropped score 37 points back to 808. It also showed a

new lease, also paid off so balance reported is $0. Either that didn't help or it was part of the 37 drop.

 

FYI prepaying these leases in this case (MB Financial) comes with gap insurance and discounts the interest rate in tihe

lease from 3% to 0.9% which doesn't sound like much but you're financing say a $45,000 residual for 27 months thats a

difference of $1000. So it would seem dopey to pay an extra $1000 just to have a higher score. Also its unclear that

having a balance due of say $12,000 would work, it may be that having it at only $760 was special because of some

kind of quasi utilization ratio stuff so low balances dropping to $0 may hurt worse than hi balances dropping to $0.

Message 49 of 90
New Visitor

Re: Paying off my car loan ruined my credit. Score dropped 70+ points.

Same.. never late a single payment then dropped 21 points after paying off car early. Unbelievable. 

Message 50 of 90