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

Senior Contributor

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


xaaronfx wrote:
Chase offers a free FICO score once a month, possibly because I have a Sapphire card - anyways, my current score as of Sept. 2nd is 746, although I suspect this to drop considerably come October due to the balance transfer and auto loan completion. I also was a day late making my credit card payment this month..for the first time in my life..sigh.


Just so you know, being a day late on making a CC payment will have no bearing at all on your FICO scores.  Late payments aren't reported to the bureaus until they are 30 days late, so anything late that is less than 30 days late will not adversely impact your scores, but it may result in a late fee from the creditor.

Message 71 of 90
Established Member

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

I'm fighting the car loan payoff score drop for a while now. Last year, when I paid off my car (i still had 2 other installments and another car loan, FICO EQ8 dropped 14 points.) This year when I paid off the other car loan (still 2 more installment loans active) it dropped again 10 points.

 

That is stupid.

 

LEXiiON


Starting Score: 703
Current Score: 719
Goal Score: 750


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Message 72 of 90
Senior Contributor

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


LEXiiON wrote:

I'm fighting the car loan payoff score drop for a while now. Last year, when I paid off my car (i still had 2 other installments and another car loan, FICO EQ8 dropped 14 points.) This year when I paid off the other car loan (still 2 more installment loans active) it dropped again 10 points.

 

That is stupid.

 

LEXiiON


I disagree, as paying off the loan raised your aggregate installment loan utilization.  So, while you previously had a loan that was near paid off (very low risk) you now possess only loans that are a longer way away from being paid off, which means you only possess higher risk installment loans.  Higher risk = lower score.

Message 73 of 90
Community Leader
Senior Contributor

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


LEXiiON wrote:

I'm fighting the car loan payoff score drop for a while now. Last year, when I paid off my car (i still had 2 other installments and another car loan, FICO EQ8 dropped 14 points.) This year when I paid off the other car loan (still 2 more installment loans active) it dropped again 10 points.

 

That is stupid.

 

LEXiiON


The best thing to do when fighting a battle is to learn how to win.  BBS and many other people can help you develop a strategy to prevent the score drops if that is something that's important to you.

 

The bottom line when you have multiple installment loans (you had four) is to funnel your payments in such a way that you are paying all the loans down while not paying any one of them off.  Once the loans are all paid down, there's no score drop from paying any of them off (as long as one loan is still open).

 

Another valid approach some people take is to not worry about their score, and just pay off their loans.  As you get close to having the last loan paid off, all your lost points will go back up.  Then you can implement the SS Loan technique in the month before the final payoff to preserve the high score.

 

Regardless, the key idea is to learn how the scoring models work, and then make decisions knowing in advance what the scoring implications will be. 

 

PS.  Glad you have joined us here on the Forums!

Message 74 of 90
Senior Contributor

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

Well put by CGID above.  To sum it up, all this credit nonsense is a game and it's up to everyone to figure out the best way to play it.  Many people on this forum have figured out the best ways and there are tons of people on here every day learning those ways.  That's really what it's all about when it comes to score maximization.

Message 75 of 90
Visitor

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

Is a mortgage not considered an open installment loan by FICO standards?
Message 76 of 90
Senior Contributor

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


xaaronfx wrote:
Is a mortgage not considered an open installment loan by FICO standards?

A mortgage IS considered an open installment loan.  Due to the size of most mortgages, they make it much more difficult to pay down aggregate installment loan utilization if you have something else like an auto loan present.
Message 77 of 90
Established Member

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

Just a data point to contribute. My FICO scores were 834/836/847. When my auto loan was reported as paid and closed, two scores dropped 21 points and one dropped 26. I have a mortgage, credit cards, and a 2-month old auto lease (which didn't affect my scores more than a point or two) for a picture of my account mix.

I plan to add another auto loan this winter so we'll see what happens then.
Message 78 of 90
Senior Contributor

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


Nuggy wrote:
Just a data point to contribute. My FICO scores were 834/836/847. When my auto loan was reported as paid and closed, two scores dropped 21 points and one dropped 26. I have a mortgage, credit cards, and a 2-month old auto lease (which didn't affect my scores more than a point or two) for a picture of my account mix.

I plan to add another auto loan this winter so we'll see what happens then.

If you have an open mortage and auto lease (2 installment loans) there's absolutely no reason why your scores should have dropped 21-26 points from closing your auto loan.  What was the original balance on that auto loan when you opened it?  How about the original amount of your mortgage?  I would think for you to see a score drop here, meaning a big aggregate installment loan utilization change, your car loan must have been significant and your mortgage perhaps not very big?

Message 79 of 90
Established Member

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

Forgot to mention, mortgage is also new as of April, so it's close to its original balance (170k original, 167k remaining) as would be the lease (no idea how original balance works on leases). Car loan was originally 36k, paid it off over 5 years with normal scheduled payments. Whatever the case is, I'm 100% sure it's due to the paid auto loan, as it reported to the CRAs on different days, and all three drops matched exactly with the date it was reported with no other changes seen.
Message 80 of 90