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The final payment on my car loan is due in December but I made a payment for the total payoff amount this month to close the account. The only account I currently have open is a credit card. Before I made the payment for my car loan to pay it off my score was high and now my score dropped almost 70 points! The credit report still shows the total balance of the car loan. What went wrong? Why does it still show a balance for the car loan and why did it lower my score? Any information would be greatly appreciated.

  • How are you obtaining your score? What is your score? Did you do anything else that might have affected your score? Does your credit report now show the car loan as closed? Which country are you in? – Ben Miller - Reinstate Monica Apr 28 '17 at 4:28
  • I am obtaining my score through credit karma and chase bank. My score was in the low 800's and now currently in between 730 and 740. There is nothing else that could of affected my credit score. I only have a credit card that I recently opened which I've only used 50% but I would think that only helped raise my credit score. Should I of just kept making the standard payment for my car up until December? oh and I'm from the US. – Joe V. Apr 28 '17 at 4:40
  • Does your score match between Chase bank and Credit Karma? – Ben Miller - Reinstate Monica Apr 28 '17 at 4:43
  • Yes, the transUnion score does match. – Joe V. Apr 28 '17 at 4:45
  • How recently did you open that credit card? When you say that you've used it 50%, do you mean that you've run the card up to 50% of your credit limit? – Ben Miller - Reinstate Monica Apr 28 '17 at 4:46
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Before I answer your question, some information about the credit score:

  1. The credit score you are looking at for free from Credit Karma and Chase is your VantageScore. This is not the same as the FICO score, which is what lenders actually use.

  2. The formulas for both VantageScore and FICO are proprietary secrets, and we can't know for sure what affects your score.

  3. Even at 730, your score is generally considered excellent.

In my opinion, paying off your car loan should not affect your score much at all. However, you have done a few things recently that will negatively affect your credit score:

  • You applied for a credit card, which resulted in a credit inquiry. (Perhaps you applied for more than one card, resulting in multiple inquiries?)

  • You are now using 50% of your available credit (credit utilization).

Credit inquiries fall off your report in time, and credit utilization is an instantaneous number with no memory that will improve immediately when you pay down your credit card. Pay off your credit card in full each month, let some time pass, and your credit score will climb again.

One last bit of advice: You've seen it pounded into your head by Credit Karma and the financial industry that your credit score is more important than anything, and they tell you that you need to keep getting more credit cards and loans to raise your score. Don't believe it. There is no need to pay unnecessary interest in an attempt to try to build up your score. Pay your bills on time, and your credit score will be fine.

  • I wouldn't say that credit utilization improves immediately when you pay down the card. You still have to wait for the lender to report your new balance to the bureaus. In my experience they seem to only do this once per month at best (some reporting only once every 2-3 months). Therefore it's important to try to keep your utilization low most of the time, unless you happen to know exactly when your lender is going to report and can pay it down just before it happens. – CactusCake Apr 28 '17 at 14:00
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    @CactusCake Agreed, it doesn't take effect until your new balance gets reported. If we want to split hairs, we can say that your utilization improves immediately, but the change to your credit score lags a bit. The point I was trying to make is that your utilization has no history; once it is updated, your previous utilization number is irrelevant. I would also like to add that you want to keep your utilization low only if you actually care about maximizing your score. Many of us just don't care. – Ben Miller - Reinstate Monica Apr 28 '17 at 14:32
  • Where can I see my FICO score? – 0x499602D2 May 2 '17 at 1:10
  • @0x499602D2 That sounds like a great new question. :) – Ben Miller - Reinstate Monica May 2 '17 at 1:22

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