My credit score went down 20 points for paying off my auto loan?

[Asmodai66]

I thought paying off any loan or debt, it would bring my credit up not down? I paid off my auto loan a year early. I'm not understanding why it would go down?

[SarahJo]

Do you have any other installment type loans? In my experience, yes that happens. I have paid an auto loan off, early as well but not sure that really matters, and took a 20pt. hit...

[pipeguy]

FICO scoring typically "likes" a mix of 3 types of credit accounts, revolving (credit cards), installment (car loans) and a mortgage for a maximum "window" into your score-credit risk picture. When you remove one of those factors, there is nothing to score so if you have a zero balance on any of the three scoring factors scores typically fall. 

My experience is that when I zero out an installment loan my scores drop 15-20 points, even though I carry two car loans which means there is one "open" installment loan. When I add a new car loan, even though I'm adding $25- $30k in debt as a second installment loan, those 15-20 points are recovered. The last time I paid off and then replace a new car was March 2016 so I have fairly recent experience with the installment scoring factor. 

If you carried a $00.00 balance on all your credit cards in a given month, you'd see a drop in scores for that factor too. I'm not trying to justify adding debt to your credit portfolio for those lost points, I'm just offering why it happens.   

[Queen_Etherea]

---

@Asmodai66 wrote:

I thought paying off any loan or debt, it would bring my credit up not down? I paid off my auto loan a year early. I'm not understanding why it would go down?

---

This happened to me as well, except mine went down 50 points! I bought a car through the local dealership and told them I had it financed through PenFed and I would bring the check as soon as they sent it. Well, the manager apparently didn't listen and financed me through Chase before I could give them the check from PenFed. This whole car buying experience with this dealership was a freaking nightmare! I ended up having to fight to return the car I bought because it broke down on me the 3rd day I had it, and the manager refused to do anything about it until my bf showed up (that's a whole other story on it's own). Anyways, long story short, they paid off the entire Chase loan and because of that, my score dropped 50 points. The guy even told me, "Your score will way up because you paid it off!" Uhhhh no.. I wish I knew then what I know now!

But yeah, your score most likely went down because you don't have an active loan. You're dinged when it's too high, and dinged when you pay it off. Damned if you do...