Author Topic: Credit Score Dropped After Loan Paid Off  (Read 6143 times)

T-Rex

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Credit Score Dropped After Loan Paid Off
« on: September 17, 2014, 12:59:43 PM »
My credit score has dropped about 40 points as soon as I paid off my car loan. What reasonable thing can I do to bring it back up? I have one credit card and no other loans.

arebelspy

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Re: Credit Score Dropped After Loan Paid Off
« Reply #1 on: September 17, 2014, 01:45:38 PM »
Your credit score is a function of how well you handle credit.  If you don't have a lot of it, they can't know you can handle it well.

For now, get a few more CCs.  Get ones without any annual fee, and always pay them off (preferably get some rewards ones that pay you 400-700 for signing up for them).
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T-Rex

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Re: Credit Score Dropped After Loan Paid Off
« Reply #2 on: September 17, 2014, 03:08:46 PM »
Thanks. How important is it to have a mix of types of credit, though?

woodnut

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Re: Credit Score Dropped After Loan Paid Off
« Reply #3 on: September 17, 2014, 03:54:15 PM »
I noticed the same thing when I paid off the mortgage, both my wfie's and my FICO score dropped by about 30 points (according to Discover Card statements).  I found it odd, but also don't really care.  Sorry T-Rex don't have any advice for you how to bring it back up.  I'm guessing mustachians break their algorithms.


Sylly

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Re: Credit Score Dropped After Loan Paid Off
« Reply #4 on: September 17, 2014, 04:09:57 PM »
The other thing is, what range of score are we talking about here (that's rhetorical, you don't need to tell us)? If your score is still in the good/excellent range despite the 40 drop, I wouldn't worry too much.

Up until I got a mortgage, my credit history stemmed from: 1 small, quickly paid off student loan, 3 cs as primary holder, and 1 cc as secondary. In the span of a little over 10 years from the first cc, I managed to reach the excellent range.

Granted, I had more cc's than you, so I don't know how much that affects it, but at least that says you don't need too many different types of credit.

arebelspy

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Re: Credit Score Dropped After Loan Paid Off
« Reply #5 on: September 17, 2014, 07:07:43 PM »
Thanks. How important is it to have a mix of types of credit, though?

That helps, but more lines is still better, and more available credit is still better (in general).

One credit card is probably not ever going to be enough for a great score.
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Jellyfish

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Re: Credit Score Dropped After Loan Paid Off
« Reply #6 on: September 17, 2014, 07:12:21 PM »
I always assumed I had "perfect credit".  I have one mortgage and one credit card I pay off each month. Go figure I'm doing it wrong.  If I got a second credit card in order to improve my credit score, would I actually have to use it?  Or is simply having an open credit card with available credit enough?

chasesfish

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Re: Credit Score Dropped After Loan Paid Off
« Reply #7 on: September 17, 2014, 07:16:55 PM »
T-Rex:  What did the score drop from and to?  If you don't want to write it publically, feel free to PM me.

I look at scores weekly as part of my job.  Credit scores are based on a bell curve, so depending on where you are on that curve depends on the value of the 40 points.  640 to 680 are really important points, just like a 670 to a 710.  After you get above 700, 720, 740, it is incredibly difficult to control the factors that go into your score.  Additionally, somewhere between 700 and 740 is what lenders use as the highest possible scores for their credit decisions.

Paying all your bills on time for 36 months, not maxing out your credit cards, and avoiding collections/judgements will generally get you over 700.  The little things you have to do above and beyond that don't provide you finacial value. 

Thats just my opinion, I could always be wrong...

daverobev

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Re: Credit Score Dropped After Loan Paid Off
« Reply #8 on: September 17, 2014, 07:32:21 PM »
T-Rex:  What did the score drop from and to?  If you don't want to write it publically, feel free to PM me.

I look at scores weekly as part of my job.  Credit scores are based on a bell curve, so depending on where you are on that curve depends on the value of the 40 points.  640 to 680 are really important points, just like a 670 to a 710.  After you get above 700, 720, 740, it is incredibly difficult to control the factors that go into your score.  Additionally, somewhere between 700 and 740 is what lenders use as the highest possible scores for their credit decisions.

Heh, I'd love to do credit analysis for a job, I find it all so interesting.

OP... From what I've read, 3 open 'lines' is a good thing. Don't worry about having different kinds, it's very minor.

There are 5 main factors, and payment history is the most important, followed by utilisation - under 30% is good, above 0% also good (note the part due to utilisation changes as your cards report, and that it's usually the card balance that gets reported). Then age of accounts, and finally types of credit and having new credit/enquiries.

As long as you're not using most of your credit each month (even if you're paying it off), don't worry. If you are, do a pre-statement-closing one month so you're only showing as using 20% or so, then apply for a couple of new cards, maybe a limit increase on the one you have.

If you had a high balance on your card that statement then it could cause a drop... Say you had a $5k limit card, usually put $1k on it but this month bought a laptop and paid, I don't know, for a flight or something and had $3.5k, that'd make a significant difference..

T-Rex

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Re: Credit Score Dropped After Loan Paid Off
« Reply #9 on: September 17, 2014, 08:33:45 PM »
It went from about 749 to 710. The only other change besides my car loan being paid off is that I have a 5% card utilization, up from 0%.

daverobev

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Re: Credit Score Dropped After Loan Paid Off
« Reply #10 on: September 18, 2014, 06:06:15 PM »
It went from about 749 to 710. The only other change besides my car loan being paid off is that I have a 5% card utilization, up from 0%.

Cool - so it's certainly halving the number of open credit lines you have.

710 is still passable; just apply for a new card or two, wait 3 months and you'll be right as rain. Remember not to close your old card, either - ever!

Best to get at least one card on a different network, too. Personally I'd have one cashback, one travel/insurance, and one of the rotating category ones... as my main wallet cards, anyway.

MandalayVA

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Re: Credit Score Dropped After Loan Paid Off
« Reply #11 on: September 19, 2014, 11:53:49 AM »
Speaking as someone who used to work at a credit reporting service, a score of 710 is better than about 90% of the people in this country.  It was eye-opening for me to see credit report after credit report roll through with huge mortgages, two car loans and seven credit cards very nearly maxed out ... and then the people would cry about why their credit score was so low.

Bob W

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Re: Credit Score Dropped After Loan Paid Off
« Reply #12 on: September 19, 2014, 01:25:44 PM »
Nicely done my friend!

The scores are based on several factors included type of debt.  Revolving, mortgage,  car loans.  They like to see all 3 types.     

So, dare I say,  refinancing the car would make sense if you're wanting to bump up the credit card score (which at your level I would say is worth it).   

The 3% loan rate can be offset by putting an equal amount of money in an investment account labeled "paid off car account."    It is a paper switch that will both improve your credit score and yield significant improvement in return on your money.   (your car if valued at 10K is essentially a zero percent investment that can be turned into a 6% one. An 80,000 difference over 36 years )

That said, here are some other fine points -

Dispute everything with even a hint of negativity.   If the report says you applied for a credit card or other credit or if there were inquiries into your credit by any lender --- dispute every single one with all three agencies.  Send a letter each month stating you did not authorize and please remove until they do.

If there is a late pay,  dispute it.   Basically dispute everything that may have a hint of negativity.  And I mean everything. 

Don't be blinded by so called ethics on this one.  No company has the right to assign a score to you!   You never authorized them to do that.   They are making money off you without your permission.  Screw them!

This will add 40 points to your score in 6 months or less.

Ask for an increase in the limit on your current cards.   I wouldn't apply for more than 2 new cards in 9 months.  And do them both on the same day.   Be sure to apply for ones that give you lots of cash or airline miles.

Also,  consider being added as an authorized user on someone who loves you credit card that has a very long history and a very good payment history.  Make sure they have a personal credit score above 770.

Some of that history will migrate to you.   You don't need to receive a card, statement or any information.  Just give them your SS number.

With a little work you could be hitting the high 780s in less than 12 months, while increasing your investment returns and earning credit card bonuses.

Not a bad deal really. 

Of course as always,  I could be completely wrong.   Bob Werner

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Re: Credit Score Dropped After Loan Paid Off
« Reply #13 on: September 19, 2014, 02:08:45 PM »
I noticed the same thing when I paid off the mortgage, both my wfie's and my FICO score dropped by about 30 points (according to Discover Card statements).  I found it odd, but also don't really care.  Sorry T-Rex don't have any advice for you how to bring it back up.  I'm guessing mustachians break their algorithms.

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T-Rex, I wouldn't worry about it if I were you. Open another card and you'll be fine. But if I remember correctly from your journal you should be in a position where the net worth is starting to climb quickly. If you're stashing cash and investments, the credit score will matter a lot less. Dropping a 20% down payment on a house will help get you a nice loan rate if that's what you're looking for.

Jeremy E.

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Re: Credit Score Dropped After Loan Paid Off
« Reply #14 on: September 19, 2014, 03:51:09 PM »
I assume you have a lot of debt, probably a sizable mortgage, it sounds like what got messed up was your debt to credit ratio.  An easy fix overtime is just getting a few credit cards with as high of credit limits as possible, you might even be able to increase your credit limit on your current card. however getting your credit score checked in general can hurt your credit score if it happens often, so short term it could make your credit score worse

chasesfish

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Re: Credit Score Dropped After Loan Paid Off
« Reply #15 on: September 19, 2014, 05:35:20 PM »
710 - just forget about it, you have a great score.  It'll improve over time as your other trade lines age


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MrsPete

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Re: Credit Score Dropped After Loan Paid Off
« Reply #16 on: September 19, 2014, 06:22:32 PM »
Who cares about your credit score?  Forget it. 
Instead, focus on financial stability -- that's  your real goal. 

T-Rex

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Re: Credit Score Dropped After Loan Paid Off
« Reply #17 on: September 28, 2014, 10:18:34 PM »
It went from about 749 to 710. The only other change besides my car loan being paid off is that I have a 5% card utilization, up from 0%.

Cool - so it's certainly halving the number of open credit lines you have.

710 is still passable; just apply for a new card or two, wait 3 months and you'll be right as rain. Remember not to close your old card, either - ever!

Best to get at least one card on a different network, too. Personally I'd have one cashback, one travel/insurance, and one of the rotating category ones... as my main wallet cards, anyway.

I applied for a card this evening, wish me luck!

T-Rex

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Re: Credit Score Dropped After Loan Paid Off
« Reply #18 on: September 28, 2014, 10:30:22 PM »
Who cares about your credit score?  Forget it. 
Instead, focus on financial stability -- that's  your real goal.

Since I don't have any big loans yet, I am trying to prepare for that possibility. Financial stability is #1 of course.