Re: Paid loan off
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Paid loan off

I paid off my lowest debt on a student loan. I have 6 paid off 1. My score went DOWN for paying it off. Why Obama being punished for paying off a debt. I thought I did a good thing and my score would go up!!!!

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Paid loan off

Hard to say. One possibility is that you reduced your outstanding debt capacity as well as your outstanding balances. For example, if your credit report shows that you have five loans with combined original balances of $50,000 and combined current balances of $25,000, you are using half your capacity.  If you paid off one loan with an original balance of $10,000 but a current balance of $2000, you would end up with open loans having $40,000 of original balances and $23,000 of current balance which is about 58% usage.  Your usage percentage has gone up even though your total debt has gone down.

 

This problem will eventually go away on its own. You might be able to improve your credit score by opening a new credit card account and not using it, which will decrease your utilization percentage. However, opening a new account will also cause a temporary decrease in your score.

 

Remember that your credit score is just one way that you may be evaluated if you apply for a new loan. As long as you aren’t planning to apply for credit, it doesn’t matter what your credit score is. One important factor that lenders use is your debt to income ratio; how much total debt you have compared to your income. Since the credit bureaus do not track your income, your credit score will not show that you are now a better borrower because less of your income is being consumed by paying loans.  But a lender will see this when you fill out a loan application.

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
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