Why does paying off your debt lower your credit score?

Question

Why does paying off your debt lower your credit score?

In: 0

Answer 1

The open account (like a loan) is reported to the credit scoring companies as an *open* account (adds to your total number of accounts) and hopefully has a history of on-time payments. Once you pay it off, the account closes, so it no longer gets factored in to these two important scoring criteria. If anything it shows as an account that is closed and not much else.

edit: Writing this assuming we’re talking about something like a car loan or mortgage, not regular credit card debt. Paying off credit card debt in full is wonderful for your credit score, especially if you do it on time, as long as you don’t close the account afterwards.