topic Re: Credit Score drop after paying off car loan. in Rebuilding Your Credit

Credit Score drop after paying off car loan.

munozsa — Fri, 23 Feb 2018 16:15:55 GMT

So 9 months ago, I payed $12k in cash to completely pay of my car loan almost 2 years early. I thought this would help my credit score, but as you probably already know, it did not. It actually dropped about 20pts on the two credit agencies that I currently track (750ish to 730ish). I'm now wondering what I can do to keep it going up, since it seems to be stuck at that amount for the last 6 months.

About 3 months before that, I purchased a house, which didn't seem to affect my credit score all that much, but I'm wondering if by paying off an older loan and acquiring a newer one caused the big drop. If that's the case, then I think only time will improve my score?

Also, besides the home loan, I don't currently have any debt. I have 4 Credit Cards, of which I only use 2, and pay off completely every month. Am I being penalized for not carrying any other debt besides the house? Is there any way to help that besides going into debt for no reason? Also, if I take out debt for no reason, wouldn't that hurt my average age of accounts?

I'm just looking for practical ways to increase my FICO that doesn't involve financially questionable behavior on my part. Any help would be greatful.

Steve

Re: Credit Score drop after paying off car loan.

Anonymous — Fri, 23 Feb 2018 17:18:27 GMT

It's largely the utilization ratio on your installment (car vs home) loan.

You likely had a much lower balance to original loan amount on the car compared to the new home loan (which is now satisfying the installment loan mix of credit.)

This will come down in time . . .and you'll eventually get the points back. Paying extra on your mortgage may help.

Only let *one* of your cards report a balance of less than 9% of that card's limit when the statement closes. (You can use the cards all you like . . . just pay them down to all zero except one with the <9% balance just before the statement cuts.)

If you ended up with a decent number of inquiries from the mortgage, your score will also recover as these age and fall off. Don't apply for anything else for a good while

Re: Credit Score drop after paying off car loan.

munozsa — Fri, 23 Feb 2018 19:34:02 GMT

Thank you for your response . My utilization on my home loan is at about 75%, which makes sense as this is much higher than when my auto/house loans were combined. I still find it puzzling that the percentage means more than the total debt, but I guess it is what it is. I guess I'll put the pedal down on paying extra on the home mortgage and get that utilization down. I don't plan on buying anything on credit anytime soon, so the score doesn't mean much to me, but I hate seeing it go down. I'll sit tight and keep monitoring it. I gotta remember that it is a marathon and not a sprint.

Re: Credit Score drop after paying off car loan.

gdale6 — Fri, 23 Feb 2018 19:57:47 GMT

@munozsawrote:
Thank you for your response . My utilization on my home loan is at about 75%, which makes sense as this is much higher than when my auto/house loans were combined. I still find it puzzling that the percentage means more than the total debt, but I guess it is what it is. I guess I'll put the pedal down on paying extra on the home mortgage and get that utilization down. I don't plan on buying anything on credit anytime soon, so the score doesn't mean much to me, but I hate seeing it go down. I'll sit tight and keep monitoring it. I gotta remember that it is a marathon and not a sprint.

You will also lose points for having no open installment loans, typically 8-17 in Fico 8 so I would not be rushing to pay down a mortgage unless you have the money to save on interest.

Re: Credit Score drop after paying off car loan.

Kree — Fri, 23 Feb 2018 21:10:51 GMT

FICO is all about risk to lenders. The more you have paid, the lower the risk of losing money. When you take interest into consideration, for some loans once you reach 60-80% paid, the lender has made their investment back, and anything else will be a profit.

Re: Credit Score drop after paying off car loan.

cappaccinodagreat — Sun, 25 Feb 2018 09:17:13 GMT

I think it helps to have an active personal loan, car loan and/or home mortgage..... along with active credit cards. My experience has told me...... your credit isn't going to take a hit by paying off your credit card balances, that only helps credit scores since it shows more available credit that you are NOT using. But if you pay off your auto loan, that's one more ACTIVE installment loan that you no longer have. Than can result in a negative as far as credit scores go, but it's great if you are looking to save $$ due to the interest.

My thoughts anyway.