How Can a Score Drop So Suddenly

[Anonymous]

I  have recently paid off a mortage (both 1st and 2nd) and my score DROPPED 32 points.  The house was sold and was NOT in foreclosure....all payments were current.  What is going on?  I have made no credit inquires which is what the credit alert said. I am so frustrated I have been working for over 2 years to get my score up to no avail.  Could this be an error?  The listing from the credit reporting agency says that the accounts were closed per consumer and the balances were zero.  Please help I am recently divorced and need some guidance.

[Anonymous]

Do you have any other installment loans? By paying off your mortgages you may have severely hurt your mix.

[RobertEG]

I agree totally with debtisgood.  Credit mix, albiet only 15% of FICO score, looks at your active mix of credit.  Paying off a mortgage is happy time for you, but not necessarily for FICO.  A mortgage loan is a secured installment loan that even has its own special status within credit mix.  Your second trust may have been coded and scored as a revolving line of credit if it was a home equity loan, but regardless, it is also gone.  If you have no other install loans, you may not have a mix of credit left. 

And if you also have no active revolving TLs (credit cards), then you have no active credit.  And, I dont wish to scare you, but if that were the case, and were to persist for two years,  you might not even have a reportable FICO score for lack of recent credit after two years of more.

Contrary to the beliefs of some, FICO is not an analysis of your overall credit strenght.  It is a risk analysis, based primarily upon recent payment history, of your risk in missing payments within the next couple of years.  FICO does not like it when your current payment history dissolves, for it gives them less predictive data.

I am not at all surprised that your FICO dropped when your two mortg loans were closed.

As for advice?  Maintain at least two revolving (CC) accounts, keep them all under 10% uti, and then consider an installment loan for that new car in your garage!

Message Edited by RobertEG on 05-18-2008 09:21 PM

Message Edited by RobertEG on 05-18-2008 09:23 PM

Message Edited by RobertEG on 05-18-2008 09:28 PM

[marty56]

I am going for a new auto loan between now and the end of the year and I am going to leave one dollar on the old loan in case I dont want a score drop before I got the loan.  I dont know if I will trade my truck in or not but it might be amusing to the the dealers face when I come in and they find out the payoff amount is one dollar.

[Anonymous]

Thank you both for your guidance.  I do have another installment loan a $45,000 student loan from Sallie Mae that I have paid on (more than the minimum) for the past five years.  I do have credit card debt with the ratios being high except for two that are zero.  I again have never been late, have never missed a payment and pay about 10 times the minimum.  Would your suggestion be to just keep paying off the credit card debt as quickly as I can.  This is very upsetting as I have, in my 23 years of credit, never been late, no bankruptcies, etc, liens, etc.  I appreciate all of your guidance and support. Guess we can sum it up to "life (and credit scoring) ain't fair"!

[Anonymous]

Your score drop could have been from the Sallie Mae reporting errors. What date did you get your score on? This is the likely scenario if you got your score last week.

As for your Util, if your util is above 50% on individual cards I would investigate whether any of your cards with 0 balances have low interest rate balance transfer options.  That could save you a ton of money and remove the hurt of having near maxed out cards.

[Anonymous]

None of my credit alerts were from Sallie Mae, but I have an inquiry into them asking if there was an error just to be sure.  I have my credit card debt on two cards with the lowest interest and one is 75% of the credit limit. So is it my understanding that moving some of this to a third card (even though it is paid off and not closed) would help my score?  Again, thank you for your guidance.

[llecs]

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1234help wrote:

......what the credit alert said.

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SW alerts don't include everything going on in your EQ report. I'd pull a copy to see whats going on. You could have a new late , or new account, utilization, or something else going on (even Sallie Mae as mentioned) that could be hurting you.

[Anonymous]

30 points for no open mortgage is not out of the ordinary-

I have seen 50 points.

[MattH]

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@Anonymous wrote:

30 points for no open mortgage is not out of the ordinary-

I have seen 50 points.

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Hmmm, DW and I are six years into a 30-year fixed-rate (5.875%) mortgage but we've been making big principal payments so we should have it paid off in five or ten years. When that happy day it's paid off comes, should we consider taking out a modest HELOC just to show some revolving credit? I recently paid off my auto loan so now the mortgage is my only installment loan.