Credit Karma
 

I paid off my car loan in early July. It wasn't scheduled to be done until Nov 2017. The bank closed the auto loan account obviously, and whammo...Credit Karma is saying I took a 60-something point hit

WTF.

That's going to take an insane amount of time to heal 60 points.

Did the bank report the account closing wrong, as if it were closed for a bad reason? Is Credit Karma full of shit?

It changes your utilization. 30% of your credit is factored in with how much you owe and how much credit you are using. It's the stupidest thing ever. Then entire credit system is broken and takes way to long to recover from something.

A quick Google search tells me that this is normal. Closed accounts (even paid in full ones) lower your score. It is stupid, I agree, but that is how it works.

That's nuts.

I get the idea of the account closing, etc. But Jesus. Its a car loan, they should be able to close it with an "atta boy" for being early. ****ing tanking my credit score for working ahead is the dumbest shit.

Welcome to America.

Don't borrow money and it doesn't matter.

I'm not a credit score expert by any means, but I always kind of thought of it this way:

-- WE think the score should reflect how credit-worthy a person is. Are they a reliable payer? Do they satisfy their obligations? Can they manage money well?

-- the credit score industry is actually set up to tell banks if you are a GOOD BORROWER, which means that you won't default on the loan, are a good credit risk, and -- importantly to them -- THEY MAKE EVERY ****ING DIME THEY ARE SUPPOSED TO MAKE OFF YOUR ASS.

So you close an account early, that's BAD, because the BANK DIDN'T GET ALL THOSE EXTRA MONTHS OF INTEREST PAYMENTS.

Now, I may be completely off base here, but that is how I **think** ti works, kinda sorta.

Can someone enlighten us on whether I'm anywhere close to right?

My wife would not like me having a sugar momma, so....

From what I've read about it, paying off early or not really has little to do with the credit hit. Its the fact that a diversified credit account was closed. Kind of a damned if you do, damned if you don't. But the banks should be allowed to close the account "honorably" so you aren't getting the hit regardless of what you do.

Open a credit card and get your ratio back. I always pay credit card in full each month and it keeps my score pretty high.

Could be because Credit Karma switched to a much more volatile system somewhat recently. I have seen my score waver significantly for what I consider to be very trivial reasons. The good thing, though, is that your score also tends to spring back quickly. If your credit card company (or bank account) offers a free FICO score then check that often. Those tend to be less volatile even though they are probably using the same system or one that is very similar.

Yeah, having different types of accounts helps your score.

It's ****ing dumb

Credit Karma
 

It probably increased your debt ratio.

Never close an account due to this fact.

Are you saying he should have never paid the vehicle off?

It kind of depends on the situation. If the car loan is set up so that you benefit from paying it off early then go for it. I haven't bought a car using payments in forever, but the last time I did there wasn't any benefit in paying it off early. I would have had to pay the entire amount including interest on the loan that I had agreed to when I signed the paperwork. The only benefit for me would have been getting rid of a monthly payment. While that is nice and convenient it doesn't help your credit score. If you have it set up so that your payments are low then it helps your score to just keep paying those monthly payments, keep them as part of your overall credit profile.

The system they use to calculate your score has nothing to do with managing your financial life to suit you. It only applies to how you are perceived as a potential debtor. He might have considered getting a cheap 2nd vehicle, like a small motorcycle, on the longest contract possible. If he was primarily concerned with building his credit score.

What about paying it off on time? You still get the hit when the account closes

Depends on what other accounts you still have open, but potentially yes.

I would recommend using multiple agencies for monitoring your credit. All free:

1) Most credit card companies offer a free FICO score. They get updated at wildly different intervals and they don't always use the same system. Grain of salt.

2) Some banks do as well. I have a checking and savings account and the bank offers this as well.

3) There are several free sites. Credit Karma, Credit Sesame, Quizzle. Accuracy is a bit up-and-down on those so take them with a grain of salt. They are paid to offer lines of credit from companies that associate with them. So don't give out any of your personal information to any of those companies unless you see a deal that really works for you.

4) Experian has a mobile app in beta that lets you access your credit report. This is not a credit score, it's just a record of what is showing on your report, which is a very different thing, but still useful. Again they offer "deals" that cost money and may not be worthwhile to you so don't get hooked on the BS they are trying to sell. Just use the free product that they offer while it is available.

At one point in my life I used no credit of any kind. I'm talking substantially more than a decade. Maybe 15 years or more-can't remember exactly. About five years ago I started checking it out and found that I had no credit at all, which is worse than no credit. I couldn't even get a score because I had a "thin file." So I started with a $500 Finger Hut account and a friend added me to her credit card as an authorized user (which I've heard doesn't work anymore). I then gradually applied for cards over time. Now I have a shit ton of cards and my score is in the high 700's.

It's actually gotten kind of goofy. I get spam from companies trying to loan me money. Credit cards, car dealerships, loans, mortgages. Rather than focusing on constantly raising your score you have to focus on specific steps that benefit you long term. Like you'll take a temporary hit sometimes in order to eventually push your score over a plateau. It just depends on what your plan is and where you are in that plan.

If you're using a car purchase to build your credit then you can go buy a motorcycle (cheap one with low payments) to keep an account going. That should help.

It sounds weird and backwards because it is. You're doing stuff to manage your finances, they are looking at stuff that says you're a good mark. A credit score is a reflection of how well they think they can make money off of you.

You're completely wrong, as usual.

Untrue as well. First off, Credit Karma is FAKO scores. No one looks at Credit Karma's formulas when you apply for a credit. They vastly overvalue hard inquiries and AAoA. Secondly, credit scores don't show how how much money a bank can make off you. I've made thousands of dollars each year for the last 4 years churning credit cards, never paying a dime of interest in my life. You think that's profitable for banks? Then why is my score in the mid-800s?

annualcreditreport.com

That's great and all, but it doesn't give you a credit score, estimated or not.

Also, any time I've seen significant jumps like you're seeing in my Credit Karma account, it balances out within a month or two. I wouldn't sweat it at all.

Do you think the OP sounds like a guy who is trying to make thousands of dollars a year churning credit cards? Every single person is different and they have different goals, as well as different ways to accomplish those goals. Most people don't have a score in the 800's and are just trying to get their scores up over time while figuring out a responsible way to manage their finances.

I was just trying to correct the misconception in this thread of what a credit score shows by using an example.

Sounds like it would be helpful if you posted some step-by-step recommendations to help people out who are trying to raise their scores.

It is a rip off. Pay cash-lower the credit score. It makes me think the credit reporters wants people to have more credit (debt) to make themselves look good.

Credit Karma scoring isn't even remotely accurate. So don't worry about that.

Your score does move though when you pay off an account. It's no longer an active credit line so it factors into scoring less.

The people I see who have the highest credit scores typically have a couple of credit cards they've had forever (with no balance) and then lots of old accounts they've paid off.

I'm a mortgage broker so I see credit reports every day. I would tell you it's a lot smarter to worry about your portfolio and assets and to spend less time thinking about how to get lower interest rates when you borrow hoping to please some ridiculous algorithm.

Is that what this thread is about?

But it's simple. Pay your bills on time every single month. Keep your utilization below 50%. Don't close old accounts unless they are costing you money (charge an annual fee, paying interest on the loan like in the case of OP). Don't apply for too much credit all at once, although you recover from that quickly.

Seems like it. The guy is stressing over his Credit Karma score. The only thing hurting my credit score is that I went without using credit for a very long time so my accounts are very new.

You'll get that back over time. My oldest two accounts are only 8 years old, and I'm constantly adding new ones. I'm still able to get approved for prime rate for anything I want, so it's nothing to stress about too much, IMO.

Yeah, that's what I was thinking too. I won't be buying anything major for about two years anyway and it's not like I have a terrible score or anything. I made the mistake of giving away too much info on one of those credit sites and got bombed with mortgage companies trying to contact me. I think this stuff is about, as you said, just being responsible and thinking long term.

I paid off my house, car and credit cards and my score went down.

Below 50% is bad. Below 30% is good. Keep your revolving accounts below 30% or they turn into negative accounts.

I'm looking at this situation also. Say you go ten years (for instance) and the only thing you have is a single credit card that you pay off in full every month. Then at some point you want a loan that is small compared to the value of the house. Say a $30,000 loan when the house is $300,000+. Are you going to get screwed on the loan. Would it be better to take out a loan that is specifically against the house?

You probably will get told to go in the direction of putting it on your house, but I wouldn't. If something happened and you can't pay it no sense in losing your house over such a small sum...

but you still close an account when you pay the vehicle off...

ive never seen a bank give money on a new vehicle under an old loan account, but i havent financed a vehicle in years.

I was thinking that the accounts would be similar. I mean, obviously, you probably aren't going to buy another car right when you pay one off. But I haven't financed a vehicle in forever either.

the issue is you are still closing the original account, which dings your credit.

They dont want you to close it early, they want every cent of interest from you. Being responsible costs the lender money.

Congratulations.

You really shouldn't have much need for credit anymore, no? Wish I was in your position.

Credit scores aren't just a barometer of how well you pay back debt. They are also an indicator of how profitable of a borrower you are. Banks lose interest income when you pay off loans early.

credit karma is not reliable. It has shown me in the 580s for a while. I went to buy a new car and was in the mid 600s and got the car with no problem. I just checked my scores a few days ago, all mid 600s, karma still shows 580. The guy at the dealership said that is normal and that credit karma often shows 100 points lower or higher than the actual score

Yep!

I bet my credit rating sucks. I haven't borrowed money since 1989.

I don't like to rent money.

I haven't cared about my credit score in a long, long time. Just haven't needed it. It was nice to get to that point.

Sure, I get that. I was thinking that the second account would take the place of the first. I would assume a brief, small dip in your score that goes back up as you start paying the second one.

Not sure but doubtful.

A closed account is closed account. And if you wee to borrow in another vehicle theoretically that would raise your debt ratio and ding the rating again. And if they had to do an inquiry there is another ding...

Nooooooo!!!!

When you payoff any acct it hurts your FICO score.

I understood this before the thread started...

Good.

Thanks. I was fortunate enough to have saved some money that I made from selling a couple of houses and keeping it tucked away. I live in Florida and when the housing market crashed a few years ago, I was able to buy a foreclosure that was in great shape for about a third of the price it sold for before the crash. The values have gone up again, but not as high as before. I paid the house off when I was 41 and paid the car off about 2 years after that.

I'm not really worried about it. The car is paid for, the house and acreage is paid. I have some old debt from my divorce because I didn't want to lose the land. I'm not really planning on buying anything big anytime soon, but I just was shocked to see that kind of hit when I checked it. I'll never be rich, but I'll own my crap and I'll have retirement funds ready to go when I hit 58 (that rule of 85 is kinda sweet)

60-plus point swings in credit scores are pretty normal and, if they're based on credit utilization (which they usually are), take very little time to bounce back from. My TransUnion and Equifax scores (which are what Credit Karma uses) swing from 810-725 just based on what my AMEX balance is.