Back in November my local bank notified me that my credit score had dropped—an identity thief had made seven credit applications in my name. After repeated failed attempts to reach #capitalone by phone (one of the banks the thief had applied to and who had made a hard pull on my credit report) I sent them a letter with a copy of my credit report and a description of the situation. I got a letter back from them today asking for…a letter and a copy of my credit report. #CreditScore #IdentityTheft
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So what does this mean? Never confuse your credit score for anything other than its true purpose—a way for the credit industry to see how much money they can make off you.
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And that leads us to the second reason: the credit bureaus have a financial interest in depressing your credit score, because they sell valuable marketing data about high-risk borrowers to subprime lenders.
The more high-risk files there are, the more money they make from subprime lenders. Low-risk borrowers just aren't as profitable.
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That doesn't seem to make sense, though. Paying off your loan and having less debt should make you a better credit risk, not a worse one.
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The official reason is that your credit score, in part, is based upon having a mix of different types of open credit—revolving, like credit cards; and installment, like auto and mortgage loans. If you close your last installment loan, this affects the "mix" in a way that drops your score.
Why does your credit score drop when you pay off a car loan?
A friend of mine was furious the other day, when he saw that paying off his car loan caused his score to drop about 40 points.
Why does this happen?
Two reasons.
Annual reminder to U.S. folks - you are entitled to a free credit report once per year from all three credit bureaus: https://www.consumerfinance.gov/ask-cfpb/how-do-i-get-a-copy-of-my-credit-reports-en-5/
If you do it online, be aware that www.AnnualCreditReport.com is the ONLY legitimate, government-approved site for getting your free credit report. All other sites are commercial or scams (but I repeat myself).
Consumer Financial Protection BureauHow do I get a copy of my credit reports? | Consumer Financial Protection BureauYou are entitled to a free credit report every 12 months from each of the three major consumer reporting companies (Equifax, Experian and TransUnion). You can request a copy from AnnualCreditReport.com.