@Sigmanu316 wrote:I had my student loans for 9 years. Last month my balance was down to $1,700.00 and I paid if off in one shot. A few days ago I checked my report and saw my score had gone down 33 points as a result of this. Why?
I can think of a few reasons for this. The first is that you no longer have any installment loans open so your credit mix just took a tumble. The second is that when it comes to open accounts your average age just went down. It is common to get student loans young while not yet having a credit card or other accounts so by the time they are paid off they are the oldest account you have. In reality it depends on what exactly is written in the report as we do not see what changes are in there.
@zerofire wrote:
@Sigmanu316 wrote:I had my student loans for 9 years. Last month my balance was down to $1,700.00 and I paid if off in one shot. A few days ago I checked my report and saw my score had gone down 33 points as a result of this. Why?
I can think of a few reasons for this. The first is that you no longer have any installment loans open so your credit mix just took a tumble. The second is that when it comes to open accounts your average age just went down. It is common to get student loans young while not yet having a credit card or other accounts so by the time they are paid off they are the oldest account you have. In reality it depends on what exactly is written in the report as we do not see what changes are in there.
No, this is not true. Closed accounts continue to be factored into the AAoA calculation for FICO scoring as long as they remain on a person's credit report.
VantageScore, which many lenders offer for free, only takes into account open accounts for the AAoA calculation but almost no lenders use VantageScore - they almost all use FICO scores.
If I had to guess, it would be because the account is now paid/closed and essentially inactive. There is no further activity on the account to report. They will still factor it in to your AAoA because it was recently closed but as far as scoring payment activity, they cant because it's paid. Therefore, it is one less account to factor into your score. If it was the only account you were paying on, score should level out but dont expect too much score growth, again, because reportable payments have ceased. You may need to open some new credit lines to advance your score.
A lot of great answers above. The FICO score is essentially a "Debt management" score and not a "Financial wealth" score... so if you aren't making payments on any debt then you'll have a lower score than if you have an open debt that you're making payments timely on. If you went out and got another installment loan then you would have a score boost. Weird, isn't it?
I would have done what you did regardless on the effect on your CS. Just keep that in mind for paying off future debts. I just paid off $23K to a car loan because I was tired of having income tied up to banks. My score dropped too. Oh well, at least I don't owe anyone a car payment each month now haha.
My next debt in line is the $17K left on a student loan too. After that I won't have any installment loans either.... in fact I'll be debt free at that point.
You did the right thing.
Personal:
@Broke_Triathlete wrote:The FICO score is essentially a "Debt management" score and not a "Financial wealth" score.
Gospel.
