Why did my credit score drop 40 points after paying off debt?

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  • July 30, 2023 at 9:20 am #9959
    Geoff Massanek
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    July 30, 2023 at 9:22 am #9965
    Team StellarFi
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    Paying off any debt reduces your credit score by a few points because it affects the average age of your credit account. The effect is more if it is an older account.

    Once your debt is paid, the account is closed, which also affects your credit mix. In addition, if it is a credit card account, your credit utilization rate increases, which further adds to the drop in your score. However, this is temporary. It is always a good thing to close off debts because it reflects well on your credit behavior. Lenders may see the successful payment of a loan as a positive sign and responsible credit behavior.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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