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Loan payoff drops score why? See details..

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Anonymous
Not applicable

Loan payoff drops score why? See details..

I had a high debt ratio which gave me a low score, about 640. Paid down a couple small credit cards but not to zero. Got it up a little, to 676. Still a high ratio though, with a couple other high cards maxed out. Owed couple brand on car loan, paid it in full, thinking this will really help get me over 700. I received a FICO alert on it stating my score changed she to a change in the car loan account status. Change retorted was zero balance, paid as agreed, paid in full, and my score was dropped 47 points for that. FORTY-SEVEN, for paying off a car loan when I have too much debt to begin with. I filed an immediate dispute, to simply have the score fixed immediately. Absolutely unacceptable. Does this credit world have ANY common sense? So ridiculous. Could it be temporary?
Message 1 of 8
7 REPLIES 7
tufa4311
Established Contributor

Re: Loan payoff drops score why? See details..


@Anonymous wrote:
I filed an immediate dispute, to simply have the score fixed immediately.


Sorry but there's nothing to "fix" - your score dropped becuase you had an installment loan account PIF and closed, I assume it was your only installment loan, and thus your credit mix was lessened. A large part of your score is the credit mix that you have. I know it doesn't feel right but a dispute is used to correct info on your credit REPORT not your credit score - you did not note that anything was incorrect on your credit report thus nothing to dispute.

 

In terms of this being temporary, yes, in a sense it is. Your score fluctuates possible on a daily basis but it is unlikely that it will jump by 50 points anytime soon without an equivalent change in your report - getting those maxed out cards paid down could do the trick.

796 TU FICO 08 (08/2018)
758 TU FICO 08 (01/12/2016)
753 TU FICO 08 (11/21/2015)
740: EQ Score Power (Beacon 5.0) FICO 04 (01/23/2015)
755 TU FICO 08 (01/21/2015)
652 TU Lender Pull (06/10/2014)
665 TU FICO 08 (05/21/2014)
Goal: 800+
Message 2 of 8
Anonymous
Not applicable

Re: Loan payoff drops score why? See details..

I understand; it's a credit 'mix' thing. Correct, that was my only installment loan. What a bunch of crap lol. Thanks for explaining. Btw, speaking of a score dispute, is there a process somewhere where one can indeed file a complaint over a score change? Not regarding this case (I'll see about canceling said dispute I guess, or just wait it out) but in the future?
Message 3 of 8
tufa4311
Established Contributor

Re: Loan payoff drops score why? See details..


@Anonymous wrote:
Btw, speaking of a score dispute, is there a process somewhere where one can indeed file a complaint over a score change? Not regarding this case (I'll see about canceling said dispute I guess, or just wait it out) but in the future?

There is no such beast, said score dispute. A dispute is referencing data on your credit report, not that you may disagree with how your score is calculated. You score is determined by an algorithm - data from your credit report goes in and and a credit score comes out. The algorithm is proprietary, it is owned by the company providing your score, and there is nothing "wrong" or "right" with it, it just is what it is.

 

Now, while you can't dispute your score you could, under the right circumstances, sue FICO for, say, a flawed scoring methodology, show damages, and then let the courts decide. It's been done before.

796 TU FICO 08 (08/2018)
758 TU FICO 08 (01/12/2016)
753 TU FICO 08 (11/21/2015)
740: EQ Score Power (Beacon 5.0) FICO 04 (01/23/2015)
755 TU FICO 08 (01/21/2015)
652 TU Lender Pull (06/10/2014)
665 TU FICO 08 (05/21/2014)
Goal: 800+
Message 4 of 8
jamie123
Valued Contributor

Re: Loan payoff drops score why? See details..

FICO treats installment loans and revolving credit (Credit Cards) differently. FICO likes you to have an open installment loan on your reports and gives you points for having one. Close the loan, lose the points. FICO doesn't like you to use much of your revolving credit and will nick you points for it.

 

You want to end up with 1 credit card reporting a balance of less than 10% of its credit line and all the rest of the credit cards reporting $0. You NEED to have one card reporting a small balance! If all your cards report $0 your score will actually drop. In my case if all my cards report balances of $0 I lose 18 points.

 

Use the snowball method to pay off your credit cards. Pay the minimums on all the cards except the card with the smallest balance. Put any extra money towards the card with the smallest balance until it is paid off. Rinse and repeat. For every card that you pay off to $0 except the last card, you will gain points.


Starting Score: EQ 653 6/21/12
Current Score: EQ 817 3/10/20 - EX 820 3/13/20 - TU 825 3/03/20
Message 5 of 8
Anonymous
Not applicable

Re: Loan payoff drops score why? See details..

It does suck, but on the bright side, your car is paid off. Now take that money and bring your util down. FYI I brought my util from 30% to 10% and have Gail about 40-50 points.
Message 6 of 8
Anonymous
Not applicable

Re: Loan payoff drops score why? See details..

Thanks to both. My mother is a loan director so good think I'd know about having a mix of debt but did not realize. I am snowballing my four cards. I pay off $100, get my score up 15 points, charge $30 and it drops 22 (vague example, not specific). No rhyme or reason. It's a relative number though, I know. And I know to keep cards open with a light balance too. Thanks for at least validating this big score drop for me. Have a good night.
Message 7 of 8
Anonymous
Not applicable

Re: Loan payoff drops score why? See details..

I was doing the same thing for 2 years, at the time my highest limit was 500 on 4 cards. When I first got them I charged about 70 percent of each card. I would pay minimum 35 payment. I would then charge another 40 then next statement pay 35 and kept repeating the process. Then one day I decided to pay down 200 then 150 ect well my scores in 2 months of doing that have gone from 645 to 708!!! I just made my payments again this month with my new cards and paying 200-300 each card. Thank god those limits were small or I would have been in serious trouble. Now my 2500 card only has 78 dollars on it same with the rest. Keeping low util is key! 😜
Message 8 of 8
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