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Paid off student loan, credit score dropped 28 points
Posted on 10/19/14 at 9:12 am
Posted on 10/19/14 at 9:12 am
How does this happen? I don't understand credit scores at all. I have two student loans and paid one off in full last week. The next day I got a credit alert and when I went check, my debt had reduced by the amount I paid on the loan and my score dropped 28 points.
Did I do that wrong??? It was a 7.5% interest loan if that matters.
Did I do that wrong??? It was a 7.5% interest loan if that matters.
7
Posted on 10/19/14 at 9:21 am to DownshiftAndFloorIt
I am no expert and hopefully someone will offer a better explanation. I believe it has something to do with the amount of debt you owe. I believe the same thing can happen with credit cards. I know if you cancel a credit card it is possible for your credit score to go down.
Posted on 10/19/14 at 9:27 am to DownshiftAndFloorIt
Your score went down because your debt utilization went up. Open a credit card with a high limit and no annual fee. Your score should go back up.
Posted on 10/19/14 at 9:34 am to tigeralum06
Mind a brief explanation of debt utilization?
I was getting ready to buy a house soon :banghead;
I was getting ready to buy a house soon :banghead;
Posted on 10/19/14 at 4:15 pm to DownshiftAndFloorIt
I think there has to be something else going on here. Simply paying off a student loan shouldn't cause a drastic drop in score. When was the last time you checked the score? What other credit do you
have? Btw, credit utilization has to do with credit card accounts, not installment loans. Total owed on all credit cards divided by total credit limits is your utilization. Best to be under 30%.
have? Btw, credit utilization has to do with credit card accounts, not installment loans. Total owed on all credit cards divided by total credit limits is your utilization. Best to be under 30%.
Posted on 10/19/14 at 5:44 pm to DownshiftAndFloorIt
It sounds like this may have been one of your older credit accounts. Unintended consequence of eliminating debt is that occasionally something like this happens.
Shouldn't be 28 points, though. Something else must be going on. I would go through your credit report with a fine tooth comb.
Shouldn't be 28 points, though. Something else must be going on. I would go through your credit report with a fine tooth comb.
Posted on 10/19/14 at 6:08 pm to Ace Midnight
The one I get through the credit card company doesn't have much detail other than score, debt, credit lines, and payment history.
It was a private loan from a year and a half ago.
I'm just having a hard time wrapping my head around paying something off being bad.
It was a private loan from a year and a half ago.
I'm just having a hard time wrapping my head around paying something off being bad.
Posted on 10/20/14 at 6:54 am to DownshiftAndFloorIt
Paying off an installment loan that's only 1.5 years old will not drop your score like that. Something else is affecting it.
Posted on 10/20/14 at 11:26 am to DownshiftAndFloorIt
You can get one free report per year from each bureau, but it won't necessairly have the score. But take a look and make sure nothing else is happening.
If you are about to buy a house, go talk to the loan officer/broker. Getting rid of 7.5 percent interest rate debt is, overall, a good thing.
If you are about to buy a house, go talk to the loan officer/broker. Getting rid of 7.5 percent interest rate debt is, overall, a good thing.
Posted on 10/20/14 at 12:29 pm to DownshiftAndFloorIt
It is backwards, but essentially paying off installment accounts doesn't improve your score because that account is then closed. The credit rating companies rate you based on your ability to pay back debt. When an installment account is closed, they can no longer measure your risk based off of that account.
It differs with revolving accounts(credit cards) because paying off the balance does not close the account.
Credit Karma sucks and is usually off by 20-30 points. In addition it only gives you your transunion score. However, it gives you an opportunity to see if there are any negatives affecting your history.
It differs with revolving accounts(credit cards) because paying off the balance does not close the account.
Credit Karma sucks and is usually off by 20-30 points. In addition it only gives you your transunion score. However, it gives you an opportunity to see if there are any negatives affecting your history.
Posted on 10/21/14 at 5:52 am to ds1tiger
I'll call them today and let y'all know if I find anything out.
Posted on 10/21/14 at 8:19 am to DownshiftAndFloorIt
If you're getting ready to buy a house soon, pony up the $60 or whatever it is and get all 3 reports from myfico.com. It would be best to be prepared and know what they all say instead of messing around with these piss arse sites that are free and not accurate.
Posted on 10/21/14 at 1:54 pm to DownshiftAndFloorIt
Was that your oldest account?
I still have the credit card I got when I started college. It hasn't been used in 10 years, but it's my oldest account. Closing it would shorten my credit history.
I still have the credit card I got when I started college. It hasn't been used in 10 years, but it's my oldest account. Closing it would shorten my credit history.
Posted on 10/21/14 at 2:16 pm to DownshiftAndFloorIt
quote:
Did I do that wrong??? It was a 7.5% interest loan if that matters
No, you did the right thing.
With no other details to help determine the cause, I'm going to guess that your lack of credit history/revolving credit is hurting you.
Posted on 10/21/14 at 3:32 pm to tigeralum06
quote:
Your score went down because your debt utilization went up. Open a credit card with a high limit and no annual fee. Your score should go back up.
Forget the down vote. I agree with your assessment. I have seen this happen quite a bit with revolving debt.
This post was edited on 10/21/14 at 3:33 pm
Posted on 10/21/14 at 3:38 pm to DownshiftAndFloorIt
quote:
Mind a brief explanation of debt utilization?
Not an expert, but my interpretation is that if you owe $5K on a $15K loan, and say you owe an additional $20K in other debts on original credit lines of $40K:
Previous debt: $25K of $55K credit (45.5%)
Current debt: $20K of $40K credit (50%)
You reduced your denominator by proportionally more than what you owed. Someone tell me if that's wrong.
This post was edited on 10/21/14 at 3:39 pm
Posted on 10/21/14 at 5:40 pm to DownshiftAndFloorIt
I'm assuming both pre and post loan payment scores were from the same credit agency?
Which credit agency?
I pay monthly with Bank of America and they only give me quarterly credit scores(equifax/transunion/experian). My equifax score is about 25pts lower than my transunion score.
Which credit agency?
I pay monthly with Bank of America and they only give me quarterly credit scores(equifax/transunion/experian). My equifax score is about 25pts lower than my transunion score.
Posted on 10/22/14 at 5:57 am to novabill
I guess that's what happened. Apparently it was my 2nd oldest line of credit and paying it off closed it.
I gave up on calling yesterday.
I gave up on calling yesterday.
Posted on 10/22/14 at 9:42 am to DownshiftAndFloorIt
Dont worry about this hurting your chances with the lender. They also look at debt to income ratio, and by you paying off the student loan, you will look better in that category.
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