My credit score dropped 40 points after paying off my car loan early...

I had a 2018 Honda Civic loan through Wells Fargo and I was so excited to pay it off in December. I figured paying off debt would help my credit but instead it tanked from 740 to 700 because the account closed and my credit mix changed. Has anyone else seen their score dip after finishing a loan?

2 comments

2 Comments

emerym366d ago

Look at it this way - your score drop is temporary but it actually proves you're a responsible borrower who finishes their debts. Someone with a 700 score and a clean, closed auto loan looks way better to lenders than someone with a 740 and a bunch of open loans they're barely making payments on. Credit scoring is weird like that, short term pain for long term gain. Give it six months and your score will climb right back up because your history of paying off that loan stays on your report for years.

ray_martinez826d ago

Funny thing nobody's bringing up yet is how the timing of your payoff might actually hurt you more than the payoff itself. If you paid it off right when your credit utilization on other cards was already high, the algorithm sees that closed installment loan and your revolving credit balance jumps up in importance. You could have a 700 credit mix score today but if your credit cards are sitting at 50% utilization, that 40 point drop is telling you to pay those down too. It's like a see-saw effect where closing one account shines a bigger spotlight on whatever else you've got going on. Check your credit card balances and see what percentage you're actually using, because that's probably the real culprit here.