Why does credit score drop after paying off a loan?
In: Other
The short answer is that lenders don’t want you to pay off debt. They want you to pay interest and/or pay transaction fees.
I feel like a lot of people think credit scores are like a grade of how good you are with your money. Like, if you had no debt, you would have a perfect credit score. While that makes sense from a borrower’s perspective, it’s not the best from a lender’s perspective. And the score is there for lenders, not borrowers. Lenders ideally want you to go through a lot of credit (generating them income), pay it off in a reasonable time (low risk), with no insurance claims, for as long as possible. Paying off a loan conflicts with two of those ideals.
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