Paid down some debt. FICO went DOWN?!

[cantretire]

Howdy.  I just paid the remaining $10k of my car loan in one payment about 3 weeks ago after 7 months of payments. Experian dropped 5 points, Equifax is down 7. Transunion hasn't changed yet.  What??? Why?

[Thomas_Thumb]

Fico 8, 9 and 10 award points for having an open installment loan on file. If the Auto loan was your only open loan, Fico score drops when it reports closed. 

If the loan had been paid down to under 9% balance remaining, score drop can be 25-30 points. When the balance to loan is substantially higher pre-close, scoce drop is less. Why?

Fico looks at aggregate balance to loan ratio as a scoring metric. High ratios are penalized. The penalty lessens as B/L ratio decreases. A high B/L penalty offsets part or most of the open loan bonus. This could be one reason why your point loss was muted when the loan closed.

If you still have an open loan or loans you could still experience a point loss by paying off the auto loan. How? If you have multiple loans and close the one with the lowest B/L, aggregate B/L will increase. That can trigger a higher penalty.

[BrutalBodyShots]

Good reply already from @Thomas_Thumb. I'll just add that the decrease you experienced is only the loss of the bonus previously realized when you opened the loan. Overall, you actually didn't lose anything. In fact, your scores are likely higher now than they were pre-loan since you may have satisfied diversity of credit mix, you've got one more "paid as agreed" account on your file and your file is thicker, too.

Think of your score drop like this. A friend gives you $100 to hold onto for a month. In that month, you make $10 on it. When the month is over, your friend takes back the $100.

If you look at the big picture, you didn't lose anything. In fact, a net gain of $10 was realized. It would be inaccurate to look at just the final move and say "you lost $100" when your friend took it back.

[cantretire]

My score when down when I took the loan. Down again when paying it off. My remaining debt is CC and student loan, both quite high but I'm working on them.

[BrutalBodyShots]

Your score may have dropped from the new account and inquiry when the loan was opened, but you were then awarded a bonus for having an open installment loan. Even in losing that bonus following closure, your scores in the end once all the dust settles (no new account, no inquiry impact, aging metrics all improved, credit mix improved) would still be higher than they were when you started. That's what's important to look at - the big picture.

[JamesS84]

This is pretty common. It should reverse course soon. You’re definitely better off now!