Dave Ramsey tells people that FICO scores aren’t credit scores; they’re “I love debt” scores. Case in point: Last week, I paid off my auto loan. This week, my FICO score dropped 60 points. Sixty! There have been no other changes to my credit report.
Needless to say, I’m pretty flabbergasted…and pissed off…that my score dropped that much for doing something good…paying off debt!
I didn’t really think about the credit score consequences paying this debt because I’m not worried about my credit score; I’m worried about becoming debt-free. And although I could have predicted that my score would’ve taken a small dip for paying off a loan, I didn’t expect my credit to be so harshly punished for it. (From my understanding, there are two things at work here: Having an auto loan improves your “credit mix” because it shows you can make a big, fixed payment on time. Secondly, I wonder if closing/paying off the loan removes all of the good, on-time payments from your credit report. That seems silly…the fact the loan is now paid off doesn’t change that I paid on time, every time).
Anyway, I was quite surprised this happened. I think it’s interesting, however, that if somebody were planning to finance new car, they might think it better to pay off their old auto loan first. But that may not be the best thing to do, after all. Fortunately I have no plans to use credit anytime soon, but I do hope that my score comes back up fairly quickly.
Has this ever happened to you?