Comments on Single Guy Money: Paid Off Debt and Credit Score Decreased

it only affects your rating once the lender report...

2009-11-07T09:28:23.447-05:00

it only affects your rating once the lender reports it to the bureau. but take note, there are a lot of factors that would affect your score.

I work in the lending industry and "credit utiliza...

2009-05-03T02:23:40.661-04:00

I work in the lending industry and "credit utilization" only goes off the revolving accounts. It's actually referred to as revolving utilization. So paying off student loans, car loans and mortgages does not affect your revolving utilization. But credit scores do take into account the diversity of loans you have, and getting the auto loan paid off might decreased your diversity. But just keep making all your payments on time, and also you should actually try to use the credit card for a small purchase each month because that will keep building payment history on those accounts, thus helping with the diversity bit.

Right. This is where you find out that your credi...

2008-07-01T11:08:57.532-04:00

Right. This is where you find out that your credit score has nothing to do with financial success. It is not a measure of winning. It measures length of debt, type of debt, amount of debt, available debt, timeliness on debt payments, debt, debt, debt, debt. It's a debt score.

What's more concerning than a drop of a few points is that you're watching it so closely to notice. Why waste your time?

Delurker here.Paying off your car loan does not ha...

2008-06-24T18:50:12.248-04:00

Delurker here.

Paying off your car loan does not have anything to do with utilization because it is an installment account. Something else could have changed or you could have been bumped to a new scorecard(probably what happened).

Are the scores you listed from myfico.com or somewhere else?

If you paid off your car loan and you don't have c...

2008-06-24T11:52:29.859-04:00

If you paid off your car loan and you don't have credit card debt--I'm confused--what is the rest of your non-mortgage debt? Student loans?

Your score is great--no worries. As Dave Ramsey says, a FICO score is a debt score. I want mine to stay high, too--but it makes me sick when I think about how it got to BE so high (10-plus years of being in credit-card debt and making regular payments).

I completely agree with the constricted level of c...

2008-06-24T11:47:24.980-04:00

I completely agree with the constricted level of credit - but the diversity in the types of credit you hold and LENGTH of credit is also very important.

By removing this diversity and long-term loan, you were lightly dinged. However, with such great credit history it's almost better to pay off those loans and extra interest!

Braunn has said it the best so far. This is the r...

2008-06-23T15:16:45.115-04:00

Braunn has said it the best so far. This is the reason why you are advised not to cancel credit card accounts, even if you never intend to use them again.

It's just about the stupidest thing I've heard of, but that's the way it is. Don't worry, the scores will head back up to where they were over time. It's just a temporary hit.

oh, in that case, then i agree with the first and ...

2008-06-23T14:00:42.493-04:00

oh, in that case, then i agree with the first and last posters - when the car loan account closed, it took away that amount from "total available". was the car loan older than the student loans? are your credit cards still open?

i wouldn't worry too much about it - it will slowly start to go back up again as you continue to make payments on your student loans...

I think frugal and paradigm are both correct. Your...

2008-06-23T12:03:27.432-04:00

I think frugal and paradigm are both correct. Your total available credit has decreased, and your type of credit has shrunk.

Plus age of accounts is also a measure, so when the car loan ended, you also lost the age of that account.

The score is based on credit use, not non-use. Since the other accounts are closed you can't use them, so no points for those paid off and closed.

Don't close the credit card when it is paid off and you will retain that credit line.

Still you have about as high a score as you could hope for, and any higher would not benefit you anyway. You're doing great!

With the same caveat as FrugalWannabe (I’m no expe...

2008-06-23T12:02:23.505-04:00

With the same caveat as FrugalWannabe (I’m no expert), I’d agree with that assessment. From what I’ve read/learned, your credit utilization is one of the major factors in your score. That is, how much of your available credit are you currently using?

Let’s say that before the payoff you had:
Credit Cards: $0 (balance) / $5000 (limit) – you said you had no outstanding balances
Car Loan: $500 (balance) / $5000 (limit)
Student Loan: $10,000 (balance) / $15,000 (limit)

So, you were utilizing $10,500 of $25,000 available. Note that for installment loans, the “limit” is simply the highest balance ever recorded on the account – usually the starting balance. In this example you were ($10,500/$25,000) 42% utilized.

Being an installment loan, however, once you paid off the balance, the account registered as closed – no longer listed as a balance nor as available (unlike revolving credit). So now your utilization is:

Credit Cards: $0 / $5000
Student Loan: $10,000 / $15,000

Or ($10,000/$20,000) 50% utilized.

While your outstanding balances decreased, your credit utilization increased because the car loan, being paid in full and closed, is no longer being included in the calculation at all.

Again, I’m no expert, but this is my current understanding of how things work.

~B

@paradigmshifted: I don't have anymore credit card...

2008-06-23T11:27:44.480-04:00

@paradigmshifted: I don't have anymore credit card debt. The credit card debt that is showing on my credit report is about $200 from last month and that has been paid. I only have mortgages and student loans.

From what I know about credit scores I agree of pa...

2008-06-23T11:05:10.549-04:00

From what I know about credit scores I agree of paradigmshifted's comment.

I think it has to do with the type/diversity of lo...

2008-06-23T10:36:41.200-04:00

I think it has to do with the type/diversity of loan/debt that you have. You used to have (in order of best to worst) a mortgage, an installment loan, and revolving debt. Now you have a mortgage and revolving debt, so you've taken out the second best type of debt. So, you'll see a dip. But it should be temporary, as the revolving debt continues to drop as well.

Another thing you could do is take your credit card debt and put it into an installment loan, but then you run the risk of having a higher APR.

I'm no expert, but I've heard that a big part of y...

2008-06-23T09:27:18.582-04:00

I'm no expert, but I've heard that a big part of your score is the amount of credit you have open and the percentage of that credit you have utilized. When your car loan was open, and you had almost paid it off, that percentage was small... but now the loan is closed, so it doesn't count as 0% utilized of x amount, but only counts your other open credit lines. Clear as mud?