Why did my credit score drop after paying off a car loan early?

[CdnDogWoodFunTrey]

I'm confused and upset. I had two car loans. I paid off one of them three years early by paying $800 a month instead of the original $299 a month. I also paid off a $5,000 credit card balance on one card and a $2,000 balance on another. I didn't close either card, so both are open with zero balances. I finally feel like there's light at the end of the tunnel. But Equifax says my credit dropped 27 points due to a reduction in open accounts. That must be from paying off one car loan. I thought that would boost my credit because ym debt-to-income ratio was working against me. What figures?

 

[Cluckinator89]

Credit scores are typically a scam. They reward you for being in debt. Getting out of debt is the goal.

 

[Maria43]

It will recover.

A small dip is normal when an account closes.

As your TDSR goes down, your score should rise in a month or two.

 

[DeepSakuraMilo]

First off congrats on all the hard work and getting everything paid down! The best thing you can d is leave those credit accounts open. Just don’t use them, or use them for bills and points/miles, and pay off the full balance every month. That keeps your debt to credit ratio nice and low, which boosts your score. Paying bills on time makes up about 40% of your rating, and your debt ratio is roughly another 30%. Hard inquiries count for about 5%, and the rest comes from how long your accounts have been open.

 

[DrLemmingFit76]

Getting a good credit score and paying off debt are two different goals, and you gotta do things differently to reach 'em. If the goal is debt free. Stop looking at the credit score. Means nothing. But if you're trying to get approved for a mortgage and need a certain credit score.. then it's all about moving money around correctly.

 

[FlushSparkle]

Please, from the heart, make sure you use those cards every several months or so. Put a tank of gas, or something small, on it. And don't pay it early let it truly show up on your report, just as it should.

 

[fatdogproject]

Keep a small balance on your credit cards, or they will close automatically because of inactivity.

 

[applebivlos]

You know, it fluctuates. Always keep your debt manageable if you want your credit score to improve, so use one card to charge some bills and pay it often but again, it’ll fluctuate.

 

[StormRippedSuit]

Don't sweat it, its temporary. Stay on your track.

 

[DunmerWyre]

Be proud and wait for the score to come back up. A couple of years ago, a bank closed a credit card I had held since I was 19 over 30 years. My score dipped for just a blip.

 

[TowellWhine12]

It will drop before it rises. Stupid way it works but it just is