Student Loan Payoff Substantial Drop!

supervelous · ‎04-05-2015

So, I pay close attention to my FICO scores, have the subscription for credit monitoring for all 3 credit bureaus. Last refresh of my FICO scores was on April 3, 2015 and the scores were Experian 774, Transunion 776, and Equifax 786. This morning I got a credit alert, checked it and said my Experian dropped 31 points!!! The reason: My student loan just reported as paid off as I made my final payment this month.

On my credit card front, I let all balances report $0 except one which I keep at below 10% utilization. I can't believe paying off a loan would cause such a huge drop! I guess this is optimal mix of accounts, but the loan history should still show on my credit history just no longer "open".

Very dissapointed in this, I should not have to be paying interest and maintain an installment loan to keep my credit score high. It's already bad enough you take a hit for having $0 in credit card balances report across all cards, but at least you can manipulate that without paying interest. No idea what I can do to bring this back up ouside of getting another loan.

aav · ‎04-05-2015

I'm in a similar situation. I keep a very low utilization and like zero balances...I could pay off my student loan as it is under $1k, but I'm holding off until I'm ready to buy a newer car within the next year. So I'll have another installment loan. I paid off a different student loan abt a year ago then picked up a loan for a needed roof. It just happened that way. It won't always work out that way. But having the mix of credit is part of the nonsensical credit game.

EQ - 834 TU - 823 EX - 822
Amex NPSL Amex BCP - 25,000, Amex EDC - 12000, Diner's Club Premier -35,000, Ritz Carlton - 22,500 Discover 25,100, Chase Reserve -31,000 Total Rewards 13200, Barclay 10000 Citi Diamond P 8,900

gdale6 · ‎04-05-2015

Yes your last installment loan closing results in a Fico score drop, as your credit ages and your util remains in check it will be recovered over time. A new installment loan opening is not going to gain those points back for you immediately either it would be a Fico drop for the inquiry and new account before it starts to help. I dont advise you run out and open a new installment loan just for Fico reasons.

Anomalous · ‎04-05-2015

Hey! At least you have one less bill to worry about and more money to put in savings or use for something else. Your score will recover!

<--- coming from someone who still has student loans to pay off

Keep both your credit and your body in top shape!

supervelous · ‎04-07-2015

Thanks for the replies. It just annoys me that my score drops so much from paying off a loan. Credit score is ideally supposed to measure credit risk. MyFico lists the risk of default associated with certain scores. I supposedly went from a 2% risk of default to 5% risk with my new score. And the event was paying off a loan, giving myself lower DTI, more disposable income, and less debt. In no world should I be seen as more of a credit risk from that action. And especially not a 31 point drop.

As far as I'm concerned this is a flaw in the credit scoring system. I know they like to see mix of credit, but a closed loan still showing with good payment history should count just as much as an open one.

Anonymous · ‎04-07-2015

HI EVERYONE. I'M NEW TO THE FORUM AND HAVE HAD THIS PROBLEM AS WELL. I PAID SEVERAL CREDITS OFF (0 BALANCE) AND MY SCORES DROPPED 30 POINTS. I PAY EVERY MONTH ON TIME AND I CAN'T BELIEVE THIS HAPPENED TO ME. IS THERE ANY WAY TO GET YOUR CREDIT SCORE BACK UP QUICKLY?