Credit Score Dropped

[Anonymous]

Hi Everyone

I just finished paying off a personal loan and I started getting notifications from Nerd Wallet, Credit Karma, and Experian that I had a change to my credit score. I thought that since the loan was paid off that my score would go up but it dropped 8 points, I just wanted to know if anyone could shed some light on why this happened.

Eric

[Anonymous]

The Fico scoring algorithms tend to reward nearly-paid off loans the most, as it shows the lowest utilization. Once a loan is paid off and closed, that line of credit is gone, which may affect your overall utilization across your other lines and depending on when your cards were opened, possibly lowers your average Account age. The dip in your score is temporary and will rebound before too long.

[Anonymous]

Thanks for the quick reply 

[Anonymous]

Is this your only installment loan?

[Anonymous]

No I have my car which will be paid off in January and I have another one from Lending Club that will be done in 2 years.

[Anonymous]

Let me prepare this case for GCID before he shows up. 

If you list all your loans, with the balance and the original loan amount, we can walk you through in more detail how that works.  In that list include the loan with the balance being just before payoff:

Loan 1.  Balance = _____  Original loan amount = ____

Loan 2.  Balance = _____  Original loan amount = ____

Loan 3.  Balance = _____  Original loan amount = ____

[Anonymous]

Since you're not replying, here is why I'm asking. Compare installment UTI before and after the pay off.

Loan 1 = paid off loan

Loan 2/3 = Remaining loans

Before UTI = balance 1+2+3/orginal loan amount 1+2+3

After UTI = balance 2+3/original loan amount 2+3

If after UTI is greater than before UTI, you found your answer as to why the score decreased.

[Anonymous]

Thanks for the example I,don't want you to think I wasn't going to reply with the info.When you replied back I was driving home and I saw the question but can't reply at that moment.

[Anonymous]

It's no problem, I thought you didn't want to disclose the numbers, which is totally understandable if that was the case, hence the 2nd post so you can figure it out on your own.

[Anonymous]

Thanks and appreciate the knowledge