My credit score had been 648 ever since I started monitoring it several months ago. I had 17 total open credit accounts (all of them student loans). One of the Student Loan accounts had a balance of $125 so I decided to pay it off. This immediately dropped my credit score from 648 to 593. I am really baffled why paying off a student loan account balance, which demonstrates financial reliability in paying off my debts, would drop my score. It’s the ultimate goal for everyone to pay off a student loan, but it seems like I am being punished for doing so. Just curious why this occurred and also how long before my score will go back up? Thanks.
Firstly, you should make sure the payoff is recorded correctly, and doesn't have a bad mark or was accidentally recorded as late. The account should say "paid-satisfied" or something like that, if you paid the balance in full without negotiating a lower payoff. You can get your official full credit reports from www.annualcreditreport.com once a year for each bureau. You can also get reports from the bureaus by registering accounts with them, although beware of attempts to get you to agree to pricey upgrades.
Assuming it was recorded correctly, the only thing I can think of is length of credit history. One factor in your score is the length of your credit history--your oldest account and the average age of your accounts. If you closed the oldest loan, that would temporarily drop the length of your credit history.
It's difficult to answer without looking at your detailed credit report. However, usually I find that swings in credit scores (with no changes in what loans/lines/cards you have) are due to the difference in reported balances on credit cards. Let's pretend you have one open credit card with a $10,000 limit. That credit card company reports your balance periodically. So if you checked your credit score a month ago and the last reported balance on your card was $2,000, the credit report will factor in that you were using 20% of your available credit limits which is pretty low. Now you check again today, and let's say that the last reported balance outstanding on your card was $3,000. As of that date you were using 30% of your available credit limit - still pretty low, but not nearly as low. All other things being equal, your credit score this month will be a little lower than last month's.