Not justifying the algorithms or even the agencies, but in general your credit score reflects things like onetime payments and the balances you carry relative to your outstanding credit limits. Paying off a loan closes an account, so by the formula you’re changing your open accounts. This is going to result in a temporary dip.
It’s annoying, it’s stupid, it’s not reflective of someone’s ability to manage debt (which is what a credit score should reflect), and if anything should be positive. The two things to remember are that it’s a temporary dip and your score will go back up without you doing anything differently, and that you do not need an 850 to get the best deals. Anything above 750 or whatever their top tier starting point is gets the same rate.
Not justifying the algorithms or even the agencies, but in general your credit score reflects things like onetime payments and the balances you carry relative to your outstanding credit limits. Paying off a loan closes an account, so by the formula you’re changing your open accounts. This is going to result in a temporary dip.
It’s annoying, it’s stupid, it’s not reflective of someone’s ability to manage debt (which is what a credit score should reflect), and if anything should be positive. The two things to remember are that it’s a temporary dip and your score will go back up without you doing anything differently, and that you do not need an 850 to get the best deals. Anything above 750 or whatever their top tier starting point is gets the same rate.
People bitching about this really just want to bitch and don’t have any clue how lending actually works. My score dropped 1.5%? Literally slavery!!!