Why does your credit score drop when you pay off debt?

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  • August 26, 2023 at 8:38 pm #11980
    Geoff Massanek
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    August 26, 2023 at 8:43 pm #11989
    Team StellarFi
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    If you pay off your credit card, your credit score will increase because you made an on-time payment (it makes up 35% of your FICO® score) and your credit utilization will increase (30%). With credit card debt, your credit score drops if you close off the account without paying off your credit card balances because your credit utilization increases.

    But, if you pay off any other debt, like a car loan, mortgage, or student loan, your score drops because it closes the credit account. This affects the length of your credit history and your credit mix. Closing an older account may affect your score more.

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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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