Why does credit score drop after paying off a loan?
In: Other
because credit scores are made up numbers so companies can know whom they can extort the most.
I’ve mentioned this before, but when you already have good credit, the score doesn’t matter, and what really matters is DTI… oh, how I hate that so much
the more lines of credit that you have that you’re able to successfully pay for every month, the “safer” you are to lend money to. it shows you’re able to handle a lot of debts at once without missing any payments. paying off a loan closes a line of credit, so that one less debt you’re successfully managing every month.
your credit score is basically a rating of how profitable you are for a lender to lend money to. people that take out lots of loans and maintain a credit card balance (or better, multiple credit card balances) >$0 generate much more profit for lenders, so they get a higher credit score
Because you stopped paying a loan. How can they trust you as much of you don’t have a loan anymore to judge your ability to pay off loans.
It makes complete sense in some universe
/s
Credit scores look at a few factors like total accounts, history, inquiries, revolving utilization, and missed payments. Paying off a loan (aka closing a line of credit) dings a few of these factors like total accounts and history. There, that’s it.
Every time credit scores are brought up, you got the dumbest of the dumb trying to conspiracy theory their way into confirming their biases. No, it’s not about keeping you in debt. You can have a single credit card open and use it to buy your avocado toast or whatever overpriced shit you people (people that have near 0 financial literacy) like to buy a month, pay it off, and your score will go up with time.
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