Why did my credit score drop?

Have you paid off your debt, but your credit score has dropped? Did you expect to get extra points but get frustrated? Unfortunately, many people are confronted with this and cannot understand why. However, in order to change the situation, you need to understand what factors affect your credit, have an understanding of each of them, and then pay attention to the potential causes of deterioration in your credit in order to find the best solution.


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Credit history is one of the main factors affecting loan approval, getting the best loan offers, and favorable interest rates. This is why all people strive to have a good credit score and avoid late payments. Thus, your credit history is a reflection of your debt management. Of course, many people think that paying off a big debt can improve your score, but this is a controversial statement. So, if you want to understand why your credit score can go down when you pay off your debt, you need to know a little more about the factors that affect your credit rating. By studying them, you can get the full picture, understand your problem, and take steps to solve it.

Why did my credit score drop after paying off debt?

As you know, your credit rating is based on several factors, so it is important to note that debt repayment does not always have a positive effect on each of them. If paying off your debt has changed your credit mix, credit utilization or average account age, it can affect your credit score and even lower it. So, it's important for you to research all the options that could affect your credit rating in order to find the right solution to this problem.

  • Credit utilization

You probably know that keeping the overall utilization of your available credit low has a beneficial effect on your credit history and leads to a better credit score. It is generally recommended that you use about 30 percent of your credit limit, or even less. However, paying out a revolving line of credit or credit card in full and closing the account will reduce your total available credit. Thus, it can negatively affect the utilization rate. If you let the account go inactive it also often leads to its closure and the same consequences.

  • Average age of your accounts

It's also very important to keep in mind the average age of your accounts. As you know, the longer your account is open and in good standing, the better for you and your credit history. If you have a 10, 20, or even 30 year old account on your credit report, that's a good sign, even if you're not currently using it. However, closing such an account may negatively affect your credit account, especially if you have kept an account that is less than 5 years old. Thus, the average age of your accounts will be lowered and your credit score will decrease.

  • Credit mix

This point deserves special attention. Most lenders want you to be a borrower who can handle different types of debt. So, if at the moment you have only one loan and you have successfully closed it, you will probably only have credit cards left. Thus, lenders will not be able to understand how you deal with other debts, since you do not have them. Thus, paying the last debt can make your credit report less varied, which can also affect your credit rating. Thus, keep an eye on your credit mix of Payday Loans, Installment Loans, Personal Loans, Car Title Loans, etc.

How does the paid debt on loans affect my credit rating?

Surely you, like many people, have at least once in your life faced with the payment of loans. However, not all people know that even paying off the debt on a loan can affect your credit rating. Since your payment will remain in your credit score, it will become part of your credit and can have a negative or positive effect on your credit score.

Really, it all depends on when you paid off the loan. If you made payments on time and paid off the debt in accordance with the terms of the contract, this can improve your credit rating. You should know that the loan stays on your credit report for 10 years. Therefore, if you made payments on time, it will benefit you and your credit account exactly as long as the loan is not removed from your credit report. However, we only talked about the positive side of loan repayment.

If you missed or forgot about installment loan payments, this could negatively affect your credit account. Thus, this information will stay in your report for 7 years, and this will affect your credit until it is deleted.

How is credit score calculated?

If you want to understand why your credit rating is deteriorating and how you can improve it, you first need to know how it is calculated. FICO uses five main factors that affect your credit:

  1. payment history - 35 percent
  2. credit utilization - 30 percent
  3. length of credit history - 15 percent
  4. credit mix - 10 percent
  5. new credit - 10 percent.

In order to understand why your credit score has deteriorated and how to improve it, you need to pay attention to each of the factors and study them carefully.

Payment history

As mentioned, payment history is the factor that most affects your credit score (35 percent). Thus, your credit rating depends mainly on how often you pay off your debts on time. And, of course, late payments will lower your credit score and remain on your credit report for 7 years. Thus, it will be quite difficult for you to improve your credit.

It is also important to note that many people deliberately skip payments in order to keep the account open, but this is a mistake. Late payments always negatively affect your credit, so you shouldn't deliberately skip paying your debt.

Use of credit

Examining the use of credit is also very important when you are trying to understand why your credit score has deteriorated. As you know, usage is calculated by dividing your balances by the total credit limit for all your cards. Thus, this includes not only the utilization rate of each card separately, but also your overall balance. As already mentioned, to maintain a good credit score, you need to use no more than 30 percent of your credit limit. The best option for anyone would be to use around 10-15 percent to have the best credit score.

It is also worth remembering that you should not pay off all the credit debt or not use the loan at all, as this can also lower your credit score.

Credit history age

We have already discussed this, but you should look again at the average age of your credit accounts, as it is an important factor in your credit rating. While having a large number of old accounts will have a positive effect on your credit, closing such accounts can reduce it. It is also important to know that having new accounts can also negatively impact your credit score. Thus, if you paid off the debt on the old account, do not rush to close it, as this may affect your credit account.

Credit mix

As already mentioned, lenders love borrowers who are good at handling different types of loans. Thus, it is advisable that you have both installment loans and revolving credit in your loan file.

Installment loans can be different - for example, personal loan, car loan, mortgage, student loan, and more. Thus, these loans have a period when they must be repaid. If you have at least one of these loans on your credit report it will be an advantage for you.

It is also important to have and revolving credit such as credit card debt. Thus, credit card debt changes from time to time and does not have a specific repayment period. It is also important to note that installment loans do not have as strong an impact on your credit as credit cards and lines of credit, as they have a debt maturity date.

Thus, pay attention to the credit debts that you have. If recently you closed an installment loan (be it a student loan, mortgage or other) and you only have credit card, now you have only revolving debt, which can negatively affect your credit history.

New loan

The last reason, which you should also pay attention to, is not less important. However, it has nothing to do with your debt repayment.

Suppose you want to take out a new loan and get turned down, and then you go to a new lender and get turned down again. You may not have known about this, but it also affects your credit and can lead to a decrease in your credit score. Let's see why.

Every time you apply for a particular loan, the lender does a hard credit check, which remains on your credit report for 2 years. Thus, hard checks can lead to a temporary decrease in your credit score.

So, if you want to get a new loan and still not harm your credit account, you need to look for lenders who offer the prequalification procedure. Thus, they will only ask for a soft credit check that will not affect your credit. Once you are prequalified, you will be able to know if you will be approved for a loan or not. If you have not passed the prequalification, then there is no point in applying for a loan with this lender. It is also worth carefully studying all the criteria and requirements so that your application is approved and you do not have to go through a new hard credit check with another lender.

How long does it take for my credit score to update after paying off debt?

Many people ask the question, how long does it take for a credit score to update after they have paid off a particular debt, but it is difficult to unequivocally answer this question. Often, it may take from one to two months, but it may take less or more time. However, do not expect that after you pay off your debt, your score will increase, since the changes are often minor. Moreover, sometimes they are negative (today you learned why and what you can do about it).

How can you improve your credit if it got worse after paying off the debt?

Even if your credit has worsened due to debt repayment, you can always fix it and improve it again. Learn how to do it.

  1. Pay attention to your credit utilization. If you notice a drop in your credit rating after paying off your debt, pay attention to how much you are using your credit limit. If this number is more than 30 percent, then you should lower your credit limit.
  2. Use a debt repayment calculator. Pay off personal loans and credit cards first, as this will not only help you control the use of the credit but also save you from unnecessary interest rates. Also, you can always use the debt repayment calculator to figure out which debt should be repaid first.
  3. See a financial professional. If you do not have time to deal with the deterioration of your credit history, you can always contact a professional who will learn your credit in detail and identify the reasons for the decrease in your credit score. Thus, he will be able to help you develop a strategy that will improve your credit score.