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Paid off student loans. Credit Score dropped 33 points. Why?

Your FICO® Scores can impact your loan interest rates, terms, approvals and more.
New Member

Paid off student loans. Credit Score dropped 33 points. Why?

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?

Message 1 of 10
9 REPLIES 9
Frequent Contributor

Re: Paid off student loans. Credit Score dropped 33 points. Why?

Here's a guess: You have no other open installment loans, and the student loan that was open is now closed. How am I doing?


Current Score: EQ779 TU781 EX805
Goal Score: 800's once again


Note to self: Garden. Must garden till 3rd Qtr, 2019
Message 2 of 10
New Member

Re: Paid off student loans. Credit Score dropped 33 points. Why?

Why would it drop though?
Message 3 of 10
Contributor

Re: Paid off student loans. Credit Score dropped 33 points. Why?

I had the same thing happen to me about 6 months ago. It’s the way FICO views open installment aka your credit mix. My guess, you don’t have any other installment loan open and my closing/ paying off your student your credit profile credit mix took a hit. There are numerous debates on this forum about getting another installment loan to eventually regain “some” of your points. 

Message 4 of 10
New Member

Re: Paid off student loans. Credit Score dropped 33 points. Why?

If it closed it could also have affected your average age of all open accounts.  Do you have other accounts like credit cards open?

Message 5 of 10
Frequent Contributor

Re: Paid off student loans. Credit Score dropped 33 points. Why?


@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.

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Message 6 of 10
Frequent Contributor

Re: Paid off student loans. Credit Score dropped 33 points. Why?


@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.

Current Cards:

Goal Cards:

EX 8: Jan 2018 - 546 | EQ 8: Jan 2018 - 571 | TU 8: Jan 2018 - 566
EX 8: Feb 2019 - 579 | EQ 8: Feb 2019 - 595 | TU 8: Feb 2019 - 595
TCL: $1,500 | AAoA: 8.3 yrs | Util: 64% (high due to charge-offs - I'm working on 'em!)
Cleaning up and rebuilding after a long hiatus from credit
Message 7 of 10
Valued Member

Re: Paid off student loans. Credit Score dropped 33 points. Why?

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.

Message 8 of 10
Valued Contributor

Re: Paid off student loans. Credit Score dropped 33 points. Why?

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:

Business:


Message 9 of 10
Frequent Contributor

Re: Paid off student loans. Credit Score dropped 33 points. Why?


@Broke_Triathlete wrote:

The FICO score is essentially a "Debt management" score and not a "Financial wealth" score.


Gospel.

    EQ=823        TU=816         EX=807      INQ=1/2/4     UTIL=1%         AZEO
Message 10 of 10