topic Re: Paid off car loan and score dropped 27 points in Understanding FICO® Scoring

Paid off car loan and score dropped 27 points

Anonymous — Tue, 17 Nov 2020 01:36:27 GMT

I made my 60th payment to BMW financial services Thursday. They reported in on Friday as paid and closed. On Monday, my score dropped 27 points. I am so sad. It went from 750s to 720s. How? I thought this was a good thing?

Re: Paid off car loan and score dropped 27 points

Anonymous — Tue, 17 Nov 2020 02:59:23 GMT

it happen to me too.

Re: Paid off car loan and score dropped 27 points

Anonymous — Tue, 17 Nov 2020 03:00:04 GMT

@Anonymous Congrats on owning your car free and clear!

Even though it seems paradoxical, paying off your installment loan can result in a score drop. The reason is related to the way installment loan utilization is awarded points in Fico scores.

You normally see a boost to your scores when installment loans (auto, mortgage, student) report under 8.9% utilization. That boost is gone once you pay off the loan.

Try not to let it bother you and enjoy the fact that you finally own your car (assuming it was an auto loan and not a lease)!

Re: Paid off car loan and score dropped 27 points

355F1 — Wed, 18 Nov 2020 17:39:05 GMT

Yep. This just happened to me in September.

My lease ended before my new car arrived and I lost 18-27 points once the lease ended.

Re: Paid off car loan and score dropped 27 points

Anonymous — Wed, 18 Nov 2020 17:48:51 GMT

@Anonymous wrote:
I made my 60th payment to BMW financial services Thursday. They reported in on Friday as paid and closed. On Monday, my score dropped 27 points. I am so sad. It went from 750s to 720s. How? I thought this was a good thing?

Prior to paying off the loan, you were seeing a Fico score boost due to having an almost-paid-off loan on your credit reports. Once you paid off the loan and it reported as such, you lost that boost. You would see that boost come back if you opened another loan and had it paid down significantly (under 9% of original balance).

Re: Paid off car loan and score dropped 27 points

SouthJamaica — Wed, 18 Nov 2020 18:48:27 GMT

@Anonymous wrote:
I made my 60th payment to BMW financial services Thursday. They reported in on Friday as paid and closed. On Monday, my score dropped 27 points. I am so sad. It went from 750s to 720s. How? I thought this was a good thing?

1. It is a good thing. Congratulations.

2. The FICO 8 scores react unkindly to the absence of an open loan. Take comfort in the fact that your mortgage scores reacted either slightly or not at all.

Re: Paid off car loan and score dropped 27 points

CaptRon — Wed, 25 Nov 2020 16:22:53 GMT

Reading this has me wanting to go on a spree! I've been waiting for my car loan to report (probably around 12/7) to see another increase in my scores. I found this researching why a couple of installment loans that were previously closed aren't showing making my new auto loan the only utilization on installment debt .
i was actually waiting for it to report to apply for an RV purchase I need for work hoping to get closer to 700.

now contemplating RV & couple of prequalified CC offers spree before I drop back into high % hell.

thank goodness for myFico you are all so helpful!!

Re: Paid off car loan and score dropped 27 points

Anonymous — Wed, 25 Nov 2020 17:41:40 GMT

For you to see a noteworthy score increase when your new loan reports, it would need to result in an aggregate loan utilization drop. Unless I'm understanding your post incorrectly, it sounds like you've got a brand new loan reporting at full utilization, so I'm not sure that you'd be seeing a drop in overall installment loan utilization.

It's also worth noting that if someone closes an almost-paid-off installment loan (seeing a score increase of 25 points or so) and replaces it with a brand new 100% utilization loan, their score will not regain those 25 points.

Re: Paid off car loan and score dropped 27 points

FishingGuy — Fri, 27 Nov 2020 23:05:33 GMT

It seems if you don't have a "loan" your score drops........ I'll tell you one worse....

I paid off my car lease, and opted to buy the car, since it had low mileage... My credit showed the old loan which had a small % remaining paid off..... and a new one with a large % balance still owed, so.... My credit scores dropped 50- 60 points or so... from 770's/780's..... to 720's ..... they're back into the 750's. But I was shocked, and did a review to make sure nothing else was negative.... there wasn't. However I guess how paying off a loan effects ones scores depends on each individuals existing file, it's "thickness" and if they have other loans or mortgages.

Re: Paid off car loan and score dropped 27 points

Anonymous — Sat, 28 Nov 2020 04:28:52 GMT

@FishingGuy wrote:

I paid off my car lease, and opted to buy the car, since it had low mileage... My credit showed the old loan which had a small % remaining paid off..... and a new one with a large % balance still owed, so.... My credit scores dropped 50- 60 points or so...

While I haven't seen every piece of data out there regarding score drops from paying off one's only almost-paid-off installment loan, I have never seen a Fico score drop of 50-60 points for this CR change. Are you indeed referencing Fico scores and if so, which version? For a drop that large to be realized my guess would be that other things changed around the same time. I'd be curious to hear what others think of this.

Re: Paid off car loan and score dropped 27 points

FishingGuy — Sat, 28 Nov 2020 15:32:35 GMT

Those were Fico 8 scores from here, so I know they were real.... went from high 770's / 780s.... down to 730's/740 when the payoff occurred which got me nervous... then a few weeks later..... when the new loan reported scores dropped to 720's 7teens.... which got me VERY nervous and upset.

I actually had someone review everything/ all three reports at that time.... to make sure nothing else negative "popped up".
> Please note, at that time I did have a thin file.... though more than 10 accounts AAOA was low ( under 2 years, maybe even under 1 ).... but the drop still SHOCKED me. It's about 8 months later and I'm back into the mid 750's now and gardening.

Re: Paid off car loan and score dropped 27 points

BallBounces — Mon, 30 Nov 2020 19:03:45 GMT

@Anonymous wrote:
I made my 60th payment to BMW financial services Thursday. They reported in on Friday as paid and closed. On Monday, my score dropped 27 points. I am so sad. It went from 750s to 720s. How? I thought this was a good thing?

It's one of the more irritating phenomena associated with many of the FICO algorithms, isn't it? Take solace in the fact that you are fundamentally better off than you were the month before you paid it off, even if your FICO score does not seem to say so. Kudos for that!

The discretely frustrating part is one appears less qualified for debt, after having just resolved a debt agreement.

Re: Paid off car loan and score dropped 27 points

Anonymous — Tue, 01 Dec 2020 13:58:29 GMT

@FishingGuy wrote:
Those were Fico 8 scores from here, so I know they were real.... went from high 770's / 780s.... down to 730's/740 when the payoff occurred which got me nervous... then a few weeks later..... when the new loan reported scores dropped to 720's 7teens.... which got me VERY nervous and upset.

I actually had someone review everything/ all three reports at that time.... to make sure nothing else negative "popped up".
> Please note, at that time I did have a thin file.... though more than 10 accounts AAOA was low ( under 2 years, maybe even under 1 ).... but the drop still SHOCKED me. It's about 8 months later and I'm back into the mid 750's now and gardening.

I don't doubt that your scores dropped as much as you said, I simply doubt that the only cause was the loan payoff. I personally think that other influences magnified the actual drop. As I stated earlier, that would be an extreme outlier situation if the loan chance in and of itself lowered your score that much.

If you had more than 10 accounts, you did not have a thin file.

Re: Paid off car loan and score dropped 27 points

DarkKnight_Credit — Mon, 17 May 2021 15:42:15 GMT

I don't know whether this is relevant or not, but from my personal experience when I did do a refinance, the loan account showed as "paid", which my score jumped about +10 points. But only until a new loan has been added to the report, my score dropped to around 17 points. My score was around the mid 600s. Am I the only one here who experienced a positive report after having a (terrible) loan being shown has paid?

Re: Paid off car loan and score dropped 27 points

spiritcraft1 — Mon, 17 May 2021 16:01:48 GMT

Get an SSL and pay it down to 8.9%... scores will bounce back.

Re: Paid off car loan and score dropped 27 points

babygirl1256 — Tue, 18 May 2021 02:03:46 GMT

@DarkKnight_Credit How long did it take you to regain the 17-point loss of adding the new loan? I need to watch my scoring as I approach payoff of my SUV. Thank you for posting!!!

Re: Paid off car loan and score dropped 27 points

DarkKnight_Credit — Tue, 18 May 2021 03:26:37 GMT

Anytime!

It took about at least 6 months for me to get those points back.

Re: Paid off car loan and score dropped 27 points

Anonymous — Sat, 22 May 2021 01:54:57 GMT

Just for knowledge sake, there is a age of oldest & average Installment Account metrics, and age of oldest and average open installment Account Metrics, age of oldest and average Mortgage Accounts metrics, and age of oldest and average open mortgage accounts Metrics.

So not only does B/L come in to play from the amounts owed category, but the length of history category comes into play.

Re: Paid off car loan and score dropped 27 points

hazmat2021 — Sun, 23 May 2021 13:59:43 GMT

in October 2020 i paid off my only loan and in November my score dropped 45pts with no other changes. I going to do a credit builder loan for 2 years until i purchase my house too prevent this type of BS in the future. The game has always been rigged but its still neauseating when it slaps you in the face. oNLY A SYSEM CREATED BY THOSE WHO PROFIT FROM IT WOULDNOT AWARD CREDIT POINTS FOR PAYING OFF A LOAN THAT SHOULD COUNTER BALANCE YOUR NEW CREDIT MIX.

Re: Paid off car loan and score dropped 27 points

Anonymous — Sun, 23 May 2021 18:29:21 GMT

@hazmat2021 wrote:
in October 2020 i paid off my only loan and in November my score dropped 45pts with no other changes. I going to do a credit builder loan for 2 years until i purchase my house too prevent this type of BS in the future. The game has always been rigged but its still neauseating when it slaps you in the face. oNLY A SYSEM CREATED BY THOSE WHO PROFIT FROM IT WOULDNOT AWARD CREDIT POINTS FOR PAYING OFF A LOAN THAT SHOULD COUNTER BALANCE YOUR NEW CREDIT MIX.

@hazmat2021 Please hear me out before you carry out your plans. The point you lost you likely only lost on 8/9 and going and getting a SSL and paying it down, it's only really gonna give you points on 8/9.

Installment Utilization does not really affect the mortgage Scores much, so all you're going to be doing by going to get the SSL is lowering your average ages and making sure that you're on a new account Scorecard for the next year and a half on the mortgage Scores by doing that.

why would someone create a system if they didn't have the incentive of profit? there's nothing wrong with someone creating a system for profit. As long as the system works. problem is, you don't understand how the system works, and appearances look bad without understanding the mechanics.

they're not penalizing you for paying off the loan. They're taking back the bonus points they gave you for having a nearly paid off loan. You see, when you have an open loan they give you points for that in the amounts owed category, and as you pay it down, you get more points. well once it's paid off, why should you keep those points? you no longer have it? But from the outside looking in it looks like they're penalizing you for paying off the loan when in reality you were being rewarded for your proper active management of it which is now over.