Wow, paid off car and credit score dropped 25 points

[Anonymous]

I had read the credit bureaus liked to see installment credit. I paid off a new car over three years with last payment in August.and just lost 25 points. I am not planning on having any installment debt in the future. Are those 25 points gone forever? The loss of points were directly related to the loan being paid off according to Equifax. Is that big a drop normal?

[taxi818]

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@Anonymous wrote:

I had read the credit bureaus liked to see installment credit. I paid off a new car over three years with last payment in August.and just lost 25 points. I am not planning on having any installment debt in the future. Are those 25 points gone forever? The loss of points were directly related to the loan being paid off according to Equifax. Is that big a drop normal?

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It really has nothing to do with your car. it has more to do with credit mix which comprise 10% of your fico score in that catagory. there are many tricks to put installment loan back on your report if your goal is just to make sure you have the highest credit score at all times.

Example. i have $500 loan with my credit union. The terms are 3 years. So my payments are automatically withdrawn at $20 per month. which i don't even notice such a thing. hence giving me a installment loan. There are many others. That you can say take out 500 loan. pay 400 of it right away. and your next due date is 3 years away. hehehe. giving you the loan you need to max out score. But other ways to get the points in lower your utilization as well. no point of micro managing all this unless your scores so low and the approval would be borderline. 25 points is nothing in the bigger scheme of things.

[yfan]

I don't know. This would be concrening for me as I will finish paying off my car in 6 months. But was there any other changes to your credit reports? Utilization, inquiries, new accounts that happened to have coincided with your last car payment?

[CreditCuriosity]

Yep took a hit from anywhere from 10(tu)-39(equifax) when I paid off my old auto loan..  When the new one reported I got most of the points back, but not all them initially.. Now that the new installment aka car loan is 5 months old I have recouped most of them..  Part of the Fico credit mix.. Not really fair, but it is what it is and how the Fico score is driven.  So ya 25 points seems about right paying off an installment loan if that is your only one.  Kinda funny they penalize you for paying off debt :/

[Anonymous]

Thanks for the information. I don't need the 25 points for anything I am contemplating but it is nice to know there are options. Would you guess the fact I had no installment loans remaining was the major factor. If I had paid off one for example and had one remaining , what kind of score hit would I expect?

[taxi818]

In that case. You would not have lost any. Best to keep low level loan on report if you don't want debt.

[thelethargicage]

Same thing happened to me when I paid of my car a few months ago. Fortunately, my score only dropped 5 points.

[Anonymous]

Would this also happen if you refinance your car? You lose points, but then gain them back once the new loan shows up?

[Anonymous]

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@thelethargicage wrote:

Same thing happened to me when I paid of my car a few months ago. Fortunately, my score only dropped 5 points.

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That makes me wonder how many open accounts you have versus the OP, and if you had say, a mortgage loan or other installment loan active, where the OP didn't.

[CreditCuriosity]

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@Anonymous wrote:

Would this also happen if you refinance your car? You lose points, but then gain them back once the new loan shows up?

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Yes you will be hit as well unless your new refinance shows up before your original loan is paid off and closed which is doubtful.  Your scorse are good enough where it should really impact you to much though for the month or two it takes to reflect the new installment loan