It’s not like they want to punish you for paying off your car.
The reality is that a high percentage of the population loads up on more debt after paying off current debts, so the algorithm reflects that. Usually those points come back after a couple of months.
Not sure about that, but what I do know is that once an account is paid off, it closes and mostly no longer factors in. The fact that you paid it off in full doesn’t matter more than whether you made all your payments on time. An account suddenly closing because it’s paid will affect at least 3 factors of your score:
average age of accounts could go up or down
Credit utilization will go up, as the part you had paid off before the account closing counted as “available credit” for some types of debt
Credit mix: having a variety of types of credit accounts helps your score. If your only account of that type just closed, it will bring your score down
Number of accounts also matters, and there is a sweet spot for that, but that’s only like 5% of your score
These factors all have different weights and timescales, your score will typically go back to the level it was at before within a few months if nothing else changes. What matters the most is having a long history of on-time payments. The shitty thing is that any missed payment hurts 10x more and will stay on your report for ages. This is all for the US system only, which should be obvious if you’re reading this and not American.
They can also fall for stupid reasons. I recently finished paying off my car and my credit score dropped by 6 points!
That’ll teach you not to participate in capitalism.
This is only a brief fluctuation as the average age of your accounts decreases.
It’s not like they want to punish you for paying off your car.
The reality is that a high percentage of the population loads up on more debt after paying off current debts, so the algorithm reflects that. Usually those points come back after a couple of months.
Not sure about that, but what I do know is that once an account is paid off, it closes and mostly no longer factors in. The fact that you paid it off in full doesn’t matter more than whether you made all your payments on time. An account suddenly closing because it’s paid will affect at least 3 factors of your score:
These factors all have different weights and timescales, your score will typically go back to the level it was at before within a few months if nothing else changes. What matters the most is having a long history of on-time payments. The shitty thing is that any missed payment hurts 10x more and will stay on your report for ages. This is all for the US system only, which should be obvious if you’re reading this and not American.
That makes sense, even if it seems dumb to be “pre-punished” for something I’m not planning on doing.