It doesn’t say that. You’re drawing your own conclusion from the score decrease. Also, I didn’t downvote you.
The only information we are given is that the OP paid off a debt and the credit score went down.
If that was the OPs only long term debt being serviced, (credit cards don’t count), the credit agency now has no proof you can CURRENTLY pay off a new debt. Meaning OP is a slightly higher risk.
Credit agency has no idea where the money came from that paid off the debt. It only knows that OP was regularly finding money somewhere, and that OP was putting that money toward debt as agreed. Did OP lose their job after paying off the debt and doesn’t have income anymore? Did OP have someone else helping them pay that that person won’t help in the future? The credit agency has no idea. It only knows that in the past they were able to service the debt, and today they have no way to measure if they can. So it is a slight increase in risk, meaning slight decrease in credit score.
All of that is technically true, but still kind of a shit policy as it consequently raises the cost of borrowing on someone who paid back the full loan plus interest.
You can rationalize all these shit policies with any number of talking points. Some of them might even be actuarially sound. But they’re still shit.
Who would you rather give a loan to? A person who you know is currently able to pay you back or a person you know was able to pay back the loan 10 years ago?
Exactly, so that answers the question. When you finish paying your loan, you stop paying back money and thus your credit score is slightly lower than when you were actively paying back.
All of that is technically true, but still kind of a shit policy
Your complaint is with lenders then, not credit agencies. If someone misuses a tool, its not the fault of the toolmaker, but the person using the tool. Would you blame a hammer manufacturer because it is really crappy at driving in screws? I would hope not. You’d be upset at the person using the hammer to try to hammer in screws.
it consequently raises the cost of borrowing on someone who paid back the full loan plus interest
This is mostly likely untrue because she was paying off her debt the whole time she had the loan, and her credit score and history were probably improving that whole time. Maybe her score went up 300 points over the years of that loan, and then dropped 35 points.
her credit score and history were probably improving that whole time
Until she paid it off, at which point it dropped.
Maybe her score went up 300 points over the years of that loan
Maybe, but I highly doubt it. And 35 points is a big drop when you’re already in the 700-range. That can be worth a quarter point on a mortgage loan, which will end up costing you tens of thousands of dollars over the life of the note.
And 35 points is a big drop when you’re already in the 700-range.
Which means the tons of points she likely gained by paying off the debt for years saved her at least a point.
I’m not arguing that a lower credit score isn’t worse, I’m pointing out that cherry picking a single month movement to claim that she got screwed for doing something that actually likely helped her doesn’t make any sense.
It doesn’t say that. You’re drawing your own conclusion from the score decrease. Also, I didn’t downvote you.
If that was the OPs only long term debt being serviced, (credit cards don’t count), the credit agency now has no proof you can CURRENTLY pay off a new debt. Meaning OP is a slightly higher risk.
Credit agency has no idea where the money came from that paid off the debt. It only knows that OP was regularly finding money somewhere, and that OP was putting that money toward debt as agreed. Did OP lose their job after paying off the debt and doesn’t have income anymore? Did OP have someone else helping them pay that that person won’t help in the future? The credit agency has no idea. It only knows that in the past they were able to service the debt, and today they have no way to measure if they can. So it is a slight increase in risk, meaning slight decrease in credit score.
All of that is technically true, but still kind of a shit policy as it consequently raises the cost of borrowing on someone who paid back the full loan plus interest.
You can rationalize all these shit policies with any number of talking points. Some of them might even be actuarially sound. But they’re still shit.
Who would you rather give a loan to? A person who you know is currently able to pay you back or a person you know was able to pay back the loan 10 years ago?
The person who just paid me back, because they can obviously pay me back.
Exactly, so that answers the question. When you finish paying your loan, you stop paying back money and thus your credit score is slightly lower than when you were actively paying back.
Your complaint is with lenders then, not credit agencies. If someone misuses a tool, its not the fault of the toolmaker, but the person using the tool. Would you blame a hammer manufacturer because it is really crappy at driving in screws? I would hope not. You’d be upset at the person using the hammer to try to hammer in screws.
This is mostly likely untrue because she was paying off her debt the whole time she had the loan, and her credit score and history were probably improving that whole time. Maybe her score went up 300 points over the years of that loan, and then dropped 35 points.
Until she paid it off, at which point it dropped.
Maybe, but I highly doubt it. And 35 points is a big drop when you’re already in the 700-range. That can be worth a quarter point on a mortgage loan, which will end up costing you tens of thousands of dollars over the life of the note.
Which means the tons of points she likely gained by paying off the debt for years saved her at least a point.
I’m not arguing that a lower credit score isn’t worse, I’m pointing out that cherry picking a single month movement to claim that she got screwed for doing something that actually likely helped her doesn’t make any sense.